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    Calculating the Cash Balance

    So now you’ve done both halves of the equation, money coming in and money going back out, so you can put those two halves together to calculate the cash flow, and the cash balance.

    Cash flow is the change in the cash balance from month to month. You get that by adding money received and subtracting money spent.

    Cash balance is the amount of money on hand. You get that by taking the previous month’s cash balance and adding this month’s cash flow to it — which means subtracting if the cash flow is negative.

    Having a negative cash flow every so often, for a month, isn’t a big problem. You should never have a negative cash balance. That’s the same as bouncing checks.

    2 Responses to “Calculating the Cash Balance”

    1. Joy says:

      So where does the first cash balance figure come from? How did you figure your Jan. cash balance was a $1?

    2. Tim Berry says:

      Joy, the cash balance is the previous balance at the end of the last period, plus the flow of the current period. Since we know in this illustration that the cash flow in January was -55, then the ending balance of the previous period must have been $56. It doesn’t show here because we’re focusing on what happens in January, not what had happened before that.

      The number showing here as cash balance for January, $1, is the cash balance at the end of January. The cash balance at the end of December, which we can calculate from what we see here was $56, doesn’t show. But you do need to know it to make your balance calculation for the end of January. It would be in this company’s financial reports, in the balance sheet.

      Tim