## How to Calculate Ending Cash Balance - Forecast

6.    ENDING CASH BALANCE

The ending cash balance is calculated by subtracting cash outflows, interest paid for financing and principal paid on financing FROM cash inflows and financing such as bank loans, operating loans, etc. Below illustrates the forecasted ending cash balance each month for Red Deere Electronics.

 JAN. FEB. MAR. APR. MAY JUNE ENDING CASH BALANCE (A-B+C) \$8,250 \$5,000 \$5,750 \$ 7,800 \$ 8,900 \$10,750

It is extremely important to understand the concept behind these values. On January 31, Red Deere Electronics anticipates to have \$8,250 in cash (IE ending cash balance for the month). The ending cash ALWAYS becomes the beginning cash for the following month. Therefore, January's ending cash of \$8,250 becomes February's beginning cash.

The cash flow statement must account for the transition of ending cash to beginning cash. Red Deere Electronics shows this transition under the Cash Inflow section of their forecasted cash flow statement (shown below).

 CASH INFLOWS: JAN. FEB. MAR. APR. MAY JUNE Sales from Customers (per month) \$20,000 \$15,000 \$20,000 \$10,000 \$15,000 \$12,600 Loan from Family Member \$ 5,000 \$ 0 \$ 0 \$ 0 \$ 0 \$ 0 From Government Grant \$ 0 \$ 0 \$ 0 \$ 0 \$ 0 \$ 2,000 Cash at Beginning of Month \$ 8,000 \$ 8,250 \$ 5,000 \$ 5,750 \$ 7,800 \$ 8,900 TOTAL CASH INFLOWS (A) \$33,000 \$23,250 \$25,000 \$15,750 \$22,800 \$23,500

Notice, January's ending cash of \$8,250 appears as February's beginning cash. February's ending cash of \$5,000 becomes March's beginning cash. March's ending cash of \$5,750 becomes April's beginning cash, and so on. In short, the company's ending cash will be used in the following month to pay bills, to purchase equipment, to pay taxes, to pay dividends, etc.

Categories: Financial