Cash Flow & Forecasts — GCSE Business Revision
Revise Cash Flow & Forecasts for GCSE Business. Step-by-step explanation, worked examples, common mistakes and exam-style practice aligned to AQA, Edexcel and OCR.
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Go to Break-Even Analysis (GCSE)What is Cash Flow & Forecasts?
Cash flow is the movement of money into (inflows) and out of (outflows) a business over a period of time. A cash flow forecast is a financial document that predicts these flows in the future, helping a business to manage its money and ensure it can pay its bills.
Board notes: Essential for all major boards (AQA, Edexcel, OCR). Students are frequently required to complete or interpret a cash flow forecast in exams. Understanding the difference between cash and profit is a fundamental concept that is often tested.
Step-by-step explanationWorked example
A business forecasts inflows of £10,000 in March and outflows (rent, wages) of £8,000. The net cash flow for March is +£2,000. If the opening balance on 1st March was £1,000, the closing balance on 31st March will be £1,000 + £2,000 = £3,000. This £3,000 becomes the opening balance for April.
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Common mistakes
- 1Confusing cash flow with profit. A business can be profitable but still have negative cash flow if customers don't pay on time, leading to business failure. Cash is the money in the bank; profit is a calculation on paper.
- 2Thinking a forecast is always accurate. A cash flow forecast is a prediction, and the actual figures may be different. It is a management tool that needs to be monitored and updated.
- 3Ignoring the importance of the closing balance. The closing balance of one month becomes the opening balance for the next. A negative closing balance (a cash flow problem) needs to be addressed immediately, for example, by arranging an overdraft.
Cash Flow & Forecasts exam questions
Exam-style questions for Cash Flow & Forecasts with mark-scheme style solutions and timing practice. Aligned to AQA, Edexcel and OCR specifications.
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Step-by-step method
Step-by-step explanation
4 steps · Worked method for Cash Flow & Forecasts
Core concept
Cash flow is the movement of money into (inflows) and out of (outflows) a business over a period of time. A cash flow forecast is a financial document that predicts these flows in the future, helping …
Frequently asked questions
What is the difference between cash inflows and outflows?
Cash inflows are the sums of money received by a business, primarily from sales revenue. Cash outflows are the sums of money paid out by a business, such as payments for supplies, wages, and rent.
How can a business improve its cash flow?
A business can improve cash flow by increasing its inflows (e.g., chasing late payments from customers) or reducing its outflows (e.g., finding a cheaper supplier or delaying non-essential spending). It can also secure short-term finance like an overdraft.