3.7 cash flow

Bad debts

exist when debtors are unable to pay their outstanding invoices, which reduces the cash inflows of the vendor.

Cash

a current asset and represents the actual money a business has. It can exist in the form of cash in hand or cash held in a bank account.

Cash flow

the transfer or movement of money into and out of an organization.

Cash flow forecast

a financial tool used to show the expected movement of cash into and out of a business, for a given period of time.

Cash flow statement

the financial document that records the actual cash inflows and cash outflows of a business during a specified trading period, usually 12 months.

Cash inflows

the cash that comes into a business during a given time period, usually from sales revenue when customers pay for the products that they have purchased.

Cash outflows

cash that leaves a business during a given time period, such as when invoices or bills have to be paid.

Closing balance

the amount of cash left in a business at the end of each trading period, as shown in its cash flow forecast or statement. It is calculated using the formula

Credit control

the process of monitoring and managing debtors, such as ensuring only suitable customers are permitted trade credit and that customers do not exceed the agreed credit period.

Net cash flow

the difference between a firm's cash inflows and cash outflows for a given time period, usually per month. previous month.

Overtrading

occurs when a business attempts to expand too quickly without the sufficient resources to do so, usually by accepting too many orders, thus harming its cash flow.

The working capital cycle

the time between cash outflows for production costs and cash inflows from customers who pay upon receipt of their finished goods and services.