Cash Flow Plans

Cash Flow Plans are very important part of management which reduces the risk of failure and affects the company growth. At the project level it is made up of a complete history of all cash disbursement, cost of money, loans, cash shortages and earnings. The higher cash flow variability is associated with a higher level of expected external financing costs. It leads to higher cost of money. We usually need to minimize cost outflow (total project costs) or maximize cost-in flow (final cash balance). Cash Flow Forecasting is a significant part of minimizing cost outflow and maximizing cost-in flow. It is the reason why Cash Flow plan should be effective and accurate (Jiang A., 2011).

It has long been known that cash planning plays an important role in the functioning of the company. Over the years there were different ideas about cash flow forecasting. According to Construction Project Cash Flow Planning Using the Pareto Optimality Efficiency Network Model the first mention was in 1979 and the work was directed by Gates and Scarpa. Other important people who contributed to Cash Flow Plans development are for example Kaka and Price or Liu and Wang (Jiang A., 2011).

Cash flow statement is a part of Financial Statement, informing about inflows and outflows of cash and cash equivalents (International Accounting Standard 7, 6). It provides information about financing constraints and allows to measure of enterprise performance (Epstein M. 1992).

Examples of inflows

Examples of inflows (Priatin L. 2013):

• cash receipt from loan,
• cash receipt from customer,
• cash receipt from sales,
• cash receipt from collection of principal on loans,
• cash receipts from issuance of stock.

Examples of outflows

Examples of outflows (Priatin L. 2013):

• cash payment for goods and services,
• cash payment for operating expense,
• cash payment for interest,
• cash payment for other current liabilities,
• cash payment for making loans to other entities,
• cash payment for Repurchase of stock.

Cash Flow components

Cash Flow Components depend on the Company's business activities which are divided into three main types. "The cash-flow statement shall report cash flows during the period classified by operating, investing and financing activities"(International Accounting Standard 7, 10).

Law regulation

Cash Flow Statement is specified by International Accounting Standard 7 which is one of the accounting standards. International Accounting Standards (IAS) are currently replaced by International Financial Reporting Standards (IFRS).

Cash Flow Plans — recommended articles

Functions of financial management — Liquidity management — Income from operations — Micro Accounting — Performance analysis — Cash control — Operating revenue — Accrual basis accounting — Capital management

References

• Almeida H., (2004),The Cash Flow Sensitivity of Cash, The Journal of Finance, Vol. 59, No.4.
• Epstein M., (1992), How useful is the statement of cash flows?, Strategic Finance, Vol. 74, No.1.
• Farlinger K., (2014), IFRS in practice - IAS 7 Statement of cash flows, BDO, United Kinghdom.
• Gentry J., (1990), Profiles of cash flow components, Financial Analysts Journal, Vol. 46, No.4.
• Gruca T., (2005). Customer Satisfaction, Cash Flow, and Shareholder Value Journal of Marketing Vol. 69
• Jiang A., (2011), Construction Project Cash Flow Planning Using the Pareto Optimality Efficiency Network Model,Journal of Civil Engineering and Management Vol. 17, No.4.
• Priatin L., (2013), The Cash Flow Statement at koperasi Kampus Unsoed (Kopkun) Punwokerto at 2012, AKUN-t, Vol. 2 No 1.
• International Accounting Standard 7, (2008), 6.

Author: Joanna Trąbka