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Every amount in the cash flow becomes "alive". In other words it becomes the simulated transaction that is performed by BIS Ltd., in a chronological sequence, during the commercial activity of the firm. It begins with the first transaction, the initial provision of 800,000 of capital in the first month of the first year of operation, until the last transaction in the cash flow of year four. The course covers four years of operation.

We shall start by learning the concept of Cash Flow which is the basis of the learning methodology. In this section you will learn how cash inflows and cash outflows are forecast through the operation of our simulated firm, BIS Ltd.

A cash flow projection is a forecast of the Owner's capital, fixed and current assets, investments, loans, taxes, revenue and expenses of the company over a specified time frame. Cash flow is a term that refers to the amount of cash being received and spent by a business during a defined period of time. The Cash Flow projection is an estimate of the cash (bank notes, checks or money orders) a business anticipates to receive and spend during the course of a given span of time - usually 12 months. It is useful in anticipating the cash availability of the business at specific times during the projected period - thus you are able to provide for liquidity (money) to pay the bills from suppliers, personnel, utilities, etc.

A lack of cash to pay for bills or claims received renders the company insolvent. So having an understanding of where the company is heading financially is crucial.

Measurement of the cash flow is used to:

  • evaluate the state or performance of a business or project.
  • foresee problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while being profitable.
  • generate projected rates of return as indicator of the value of cash into and out of companies.
  • examine income or growth of a business.

The Cash Flow shows projections of cash inflows (revenue from sales, capital contribution), projections of cash outflows (in fixed and current assets, administrative and running expenses) and the balances of cash remaining in the business on a monthly basis and at the end of the period.

Cash balances are cash revenues minus cash expenses.

This Exhibit link shows the cash flow for year one (Y1), taken from the Tutorial Module, as an illustration of the cash flows used to run our simulated company, BIS Ltd.

The other three cash flows for Y2, Y3, Y4 are presented in each corresponding group in the accompanying Accounting System.

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