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Accounting Reference05

Cash and Forecasting

Budgets, reforecasts, the 13-week cash forecast, runway and working capital.

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Reference Notes

Working capital, DSO, DPO, DIO and the cash conversion cycle

Net working capital is current assets less current liabilities, usually excluding cash and debt when a buyer or a lender talks about it. Days sales outstanding, days payable outstanding and days inventory outstanding measure how long cash is tied up in each, and together give the cash conversion cycle. A profitable company can run out of cash by growing its working capital faster than its earnings, which is why the forecast tracks it.

Source: PracticeLast revised September 2026General information, not advice

Budgets, reforecasts, the 13-week cash forecast and runway

A budget is the plan for the year, set once; a reforecast updates the expected outcome as the year runs, and variances are explained against both. A driver-based model builds revenue and costs from the things that actually move them, such as customers, headcount and price, rather than from last year plus a percentage. A thirteen-week cash forecast, updated weekly, is the tool for a company whose cash is tight, and runway is simply cash divided by the monthly net burn.

Source: PracticeLast revised September 2026General information, not advice

Unit economics: gross margin, contribution margin, CAC and LTV

Gross margin is revenue less the direct cost of delivering it; contribution margin also takes out the variable costs of selling it; both are read per unit, per customer or per product to see what actually makes money. Customer acquisition cost and lifetime value describe whether a subscription business's growth pays for itself, and both depend on definitions that should be written down and reconciled to the ledger. Unit economics computed beside the books rather than from them drift into marketing numbers.

Source: PracticeLast revised September 2026General information, not advice

Accounts receivable management, aging and collections

The receivables aging groups open invoices by how long they have been outstanding and is the tool for both collections and the credit-loss allowance. Invoices go out on delivery, statements go out on a schedule, and a named person chases past-due balances on a cadence, because receivables age faster than anyone expects. Cash applied to the wrong invoice creates two errors, an overdue invoice that was paid and a credit balance that was not, so applications are checked at the close.

Source: Practice; ASC 326 for the allowanceLast revised September 2026General information, not advice

Study

Test Yourself

A few questions on Cash and Forecasting, drawn from the notes on this page, to check what stuck.

The assistant writes these questions from the reference notes on this page each time you ask. A generated question or answer can be wrong: check it against the standard the explanation names. General information, not advice.

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How to Read These Notes

General information, not advice.

A note is about accounting in general. It is not advice about your situation and it is not an engagement. When a number matters — a filing, a covenant, a sale — put it to a person.

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Read the standard it cites before you act on it. “Last revised” is the month the note was last written or corrected against that source.

A question these notes do not answer.

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