Describe a cash flow forecast and its purpose.

• A. A summary of past cash balances.
• B. A projection of cash inflows and outflows over a future period to anticipate surpluses/shortfalls and plan funding.
• C. A list of accounts payable.
• D. A plan for investments.

Answer: (B)

A cash flow forecast is a forward-looking projection of cash inflows and outflows over a future period to anticipate surpluses or shortfalls and plan funding. It shows when cash is expected to come in (like sales collections) and when it will go out (expenses, debt service, and capital plans), so you can maintain liquidity and decide how to cover gaps—whether by drawing on credit, arranging short-term financing, or timing investments of excess cash. This isn’t just a summary of past cash balances, which only tells you what happened in the past. Nor is it simply a list of accounts payable or a plan for investments; those describe components of financial management without addressing the timing and availability of cash in the future.