How to prepare Cash flow Statement and Forecast in Microsoft Business Central?

Step by Step Guidelines

Creating a cash flow statement and forecast is essential for understanding your business’s financial health. Microsoft Business Central simplifies this process, allowing you to keep track of your cash inflows and outflows and plan for the future. Here’s a step-by-step guide to help you get started.

Before going forward, I just want to let you know what is cash flow statement and cash flow forecast.

Table of Contents

What is a Cash Flow Statement?

A cash flow statement provides a summary of the cash that enters and leaves your business over a specific period. It helps you understand how well your company manages its cash position, ensuring you have enough to cover expenses and investments.

What is a Cash Flow Forecast?

A cash flow forecast predicts your future cash flow based on expected income and expenses. It’s a vital tool for planning and making informed business decisions, helping you avoid cash shortages. Now we will discuss the above two topics in context with Microsoft Business Central.

Cash Flow Statement in Business Central

Before you can create a cash flow statement, you need to ensure that your cash flow accounts are correctly set up and all transactions during the specific period have been correctly recorded in their relevant head of accounts. Please keep in mind that Cashflow statement is the historical data for a specific period of time. Since it is historical data, it will use the General Ledger Entries to calculate the values.

Cashflow statement gather data from,

Income statement (Net Income and Depreciation during the period) and,
Balance sheet (Opening Cash, changes in receivables and payables, changes in investment and financing activities).

For your more understanding, The Cash Flow Statement is made up of three sections:

Operating Activities at the top – and that includes the Cash receipts and cash payments due to operating activities – such as Account Receivable, Account Payables, Inventory, and Prepaid Accounts.
Investing Activities in the middle section – are your Fixed Assets, this includes acquisition costs, accumulated depreciation for the period, and any sale/disposal of asset.
Financing Activities the final section – this is your Cash investments and borrowings. It includes your long-term liabilities and distributions to shareholders.

The bottom will show the net cash and beginning cash for the period to arrive at your Cash at End of the Period.

Generate Cash Flow Statement

On Main Menu, Go to Finance,
Navigate to the Financial Reporting section.
Select Cash Flow Statement (You will find Standard report name “M-CASHFLOW”)

Choose the reporting period you’re interested in (e.g., monthly, quarterly).
Insert tab to auto generate report.

You will find the report on the same screen. The system will compile your data into a structured cash flow statement, showing your net cash flow for the period.

Click on the search icon in business central.
Type Cash flow (You will find name “Statement of Cashflow” or something similar)
Click on report mentioned above point.
Choose the reporting period you’re interested in (e.g., monthly, quarterly)
Click Preview or Print to generate report.

The system will compile your data into a structured cash flow statement, showing your net cash flow for the period.

Cash Flow Forecast in Business Central

In Business Central, you can use the cash flow forecast to generate predictions of a company’s cash flow. A company’s cash flow indicates its financial solvency and reveals whether the company can meet its financial obligations in a timely manner. It is looking into the future vs looking at historical transactions. For example: if today is 20-May-2024 and you want to know your liquidity position as on 30-June-2024 then you will select start date as 20-May-2024 and end date as 30-June-2024.

In Business Central, the following sources can be used to calculate a cash flow forecast:

All Receivables
All Payables
Liquid funds
Manual expenses/revenues
Sales/Purchase orders
Service orders
Fixed assets budgets/disposals
G/L budgets
Jobs
Taxes

Steps to Prepare a Cash Flow Forecast in Microsoft Business Central

Step 1. Access the Cash Flow Forecast Module

Open Microsoft Business Central.
Go to Cash Management and then select Cash Flow Forecast.

Step 2. Set Up the Cash flow Forecast Card

Click New to create a new forecast card.
Enter the name and description for your forecast.
Define the forecast period (e.g., the next three months).

Step 3. Define Cash Flow Accounts

Link your actual cash flow accounts to the forecast.

Go to Search Icon and type Cash Flow Setup and then select it
Assign relevant accounts to inflows and outflows.(These accounts must be in category from list of 10 mentioned above in this articles)

You may also do the same via going to Setting Icon and select Assisted Setup then select Configure Cash flow Account.

Step 4. Input Expected Cash Flows – Manually

Manually input or import your expected cash inflows and outflows. You have the flexibility of adding revenue and expenses by using the Cash Flow Manual Expenses/Revenues. The entries can be recurring or a one-time entry. The Cash Flow Statement can be helpful with determining what to include in the manual entries. You can look back at the historical information to see what has been posted.

For inflows, consider expected sales, loans, or investments.

For outflows, include upcoming expenses, salaries, and planned purchases.

Step 5. Run the Forecast

Click Home on screen of Cash flow forecast card
Click on Cash Flow Worksheet
Click on Suggest Worksheet Lines
- This process will create cash flow ledger entries that are used on various reports.
- You will need to select the Cash Flow Forecast along with the options on which source types to include. The Cash Flow Forecast considers various source types:
  - Liquid Funds – G/L Cash Accounts identified on the Chart of Cash Flows.
  - Receivables – which are your posted sales invoices/credit memos that are due according to payment terms.
  - Sales Orders – total from the sales order list
  - Cash Flow Manual Revenues – you can manually enter expected revenues that aren’t captured from Receivables or Sales Orders.
  - Payables – which are your posted purchase invoices/credit memos that are due according to payment terms.
  - Purchase Orders – total from the purchase order list.
  - Cash Flow Manual Expenses – you can manually enter expected expenses that aren’t captured from Payables or Purchase Orders.
  - Just to name a few more – service orders, jobs, fixed assets, and taxes.
Once the Suggest Worksheet Lines is completed, the worksheet will populate with lines that met the criteria. You can easily update the amount if you have a need to change or delete lines.
Once you are satisfied with the suggested lines, go to Home on Cash flow worksheet screen-> Register. This will finally register the cash flow worksheet lines used in reports.
Click ok to register.
You will see the fore-casted cashflow on your right hand side of your screen that show how much liquid funds at the start of the period and what will be at the end of period after considering all source of cash flow account during the specified period.