Clarification details
Updated December 2019. This document has been updated in its entirety to address new issues that have arisen from moderation.
Cash flow forecast and variation
Students need to use spreadsheet software such as Excel to create a cash flow forecast from resource material. This should follow accounting conventions such as listing projected receipts, followed by projected payments, to reach a projected net cash inflow or outflow. The next line would show the projected opening bank balance for the month, with the final line being the projected closing bank balance.
The student is expected to show the impact of the variation caused by an external factor by adjusting payments and/or receipts to accommodate the variation. The student also needs to explain how the change in cashflow will affect the business.
Narrative explaining response/s to the variation
In considering adjustments that could be made to accommodate the external variation, students should be mindful of factors that could limit their ability to reduce expenses. For example, it is not lawful to reduce wages without employees’ written consent. Similarly, some payments such as hire purchase installments and rent are subject to a contract.
Students are encouraged to consider solutions beyond business owners injecting further capital from personal savings. This is not always feasible, particularly at a time when they may also need to reduce their drawings. Solutions should be valid in the context of the business and its circumstances.
It is expected that students would use accurate business language. Receipts, payments and surplus (or deficit) should be used instead of income, expenses and profit (or loss). Negative bank balances should be shown with a minus sign or within brackets, and should be referred to as negative or a predicted overdraft, rather than jargon such as “in the red”.
Merit and Excellence
For Merit, the student will use software to show the original forecast, the effect of the external variation on the forecast, and one or more possible responses of the business to the variation. The reasons for the response/s need to be explained.
For Excellence, the reasons for the response(s) to the external variation need to be justified.