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Introduction A retail business buys 400 of stock and sells it on credit for 600
EDITION
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CIMA BRIEF 29/7/10 16:38 Page 2
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The cash flow cycle Cash Flow Forecast Jan Feb March April
Cash inflow
For a retail business, the main cash inflows come
from sales. The main outflows come from Receipts 8,000 7,000 10,000 10,000
supplies and fixed costs, such as rent, wages or Total Inflow 8,000 7,000 10,000 10,000
transport. If there is: Outflow
too much cash it needs to be put to work, Payments 16,000 14,000 7,000 7,000
i.e. invested to earn interest and avoid loss of
Total Outflow 16,000 14,000 7,000 7,000
earnings
Net cash flow (8,000) (7,000) 3,000 3,000
too little cash businesses need to know how
much to borrow and for how long. This also
incurs costs (i.e. interest) which must be Opening balance 10,000 2,000 (5,000) (2,000)
(Opening balance
An effective management accountant will forecast + Net cash flow)