Build a simple cash-flow forecast
Construct a period-by-period forecast using opening balances, cash inflows, outflows and closing balances.
Section 5 · Financial information and decisions
Exam scope and assessment notes
Cambridge IGCSE (9–1) Business Studies 0986, 2026 syllabus, Version 2. This is the separate 9–1 legacy route; 0774 replaces it for first assessment June 2027. Candidates are not assessed on constructing income statements or statements of financial position, nor on price-elasticity or exchange-rate calculations. Simple cash-flow forecast construction is assessed. Written practice is self-checked, not an official Cambridge grade; timed-paper evidence and human subject-teacher review remain outstanding.
Before you begin
- No previous business study is assumed. Identify the decision, the business context and the evidence that supports each claim.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What normally becomes the next period's opening balance?
What you will learn
- Set out a simple forecast by period
- Calculate net cash flow and closing balance
- Carry the balance into the next period
Separate cash timing from profit
A cash-flow forecast estimates when cash is expected to enter and leave a business. It is not an income statement: a credit sale may be recorded as revenue before the customer pays.
Use the time periods given. List expected cash inflows and outflows in the period when payment occurs, total each category and calculate net cash flow as inflows minus outflows.
Carry balances forward
Closing balance = opening balance + net cash flow. The next period's opening balance is the previous period's closing balance.
A negative balance signals a possible cash shortage in the forecast. It is an estimate built on assumptions about sales, receipts and payments, so a business should update it when evidence changes.
Pause and explain
A business opens with $90, receives $240 and pays $300. What is its closing balance?
Worked example
A business opens May with $500. It expects $1,200 inflows and $1,450 outflows. Calculate May's net cash flow and closing balance, then state June's opening balance.
Show the worked solution
- Net cash flow = 1,200 − 1,450 = −$250.
- Closing balance = 500 + (−250) = $250.
- June opens with the previous closing balance of $250.
Answer May net cash flow is −$250 and the closing balance is $250. June's opening balance is $250.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A shop opens June with $700, expects $1,600 receipts and $1,850 payments. Calculate net cash flow and closing balance.
Give me a hint
Subtract payments from receipts, then add the result to the opening balance.
Compare my reasoning
- Net cash flow = 1,600 − 1,850 = −$250.
- Closing balance = 700 − 250.
- Keep the negative sign on net cash flow.
Net cash flow is −$250. Closing balance is $700 + (−$250) = $450.
Look for these in your work
- Net flow correct
- Closing balance correct
- Sign handled
July opens with $450. The forecast expects cash sales of $900, customer receipts of $300, supplier payments of $750 and wages of $400. Complete the totals.
Give me a hint
Add inflows together and outflows together before calculating the balance.
Compare my reasoning
- Total inflows = 900 + 300 = $1,200.
- Total outflows = 750 + 400 = $1,150.
- Net flow is $50; closing balance is $500.
Total inflows are $1,200 and outflows are $1,150. Net cash flow is $50 and the closing balance is $450 + $50 = $500.
Look for these in your work
- Categories totalled
- Net flow calculated
- Closing balance carried
A forecast shows a closing balance of −$80 in August. Explain what the owner should check before deciding how to respond.
Give me a hint
A negative forecast is a warning based on estimates, not proof that the outcome is certain.
Compare my reasoning
- Check the timing and reliability of receipts and payments.
- Identify the size and date of the projected shortage.
- Compare options such as an overdraft or faster customer collection, including costs.
The owner should verify the assumptions and dates, then identify when the $80 shortage occurs. A short-term response may include an overdraft or earlier collection, but the owner should compare cost, feasibility and any effect on suppliers or customers.
Look for these in your work
- Forecast assumptions checked
- Timing identified
- Response and trade-off considered
Common mistakes
- Subtracting outflows from the opening balance without adding inflows
- Treating a negative net flow as a negative closing balance automatically
- Using sales dates instead of receipt dates
What can you explain now?
How is net cash flow calculated?
Compare with the explanation
Cash inflows minus cash outflows
The result may be positive or negative.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Write the relationships for net cash flow, closing balance and the next opening balance.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.