A cash flow statement is an actual representation of transactions that has already taken place. A cash flow projection is a look into the future to predict what future cash flow will be.

Difference between the cash flow statement and cash flow projection

Since we know what transactions have taken place, a cash flow statement is typically less detailed than a cash flow projection. On the other hand a cash flow projection shows more details as the user as more variables to think about while developing the projections.

For instance in a cash flow statement, there might be a line like “cash payments for expenses”. This line embodies all the cash expenses that took place in the period. In a projection the same line will be broken down into more accounts as show below:

Cash flow projections are done to determine future cash needs. A cash flow projection is just like a profit and loss statement with the only difference being only cash transactions are recorded.

Considerations for doing cash flow projections

When doing your cash flow projections it is important to take into account the effects of assets and liabilities that have resulted as result of accrual accounting. For instance, if I prepaid my rent for year and I am doing a cash flow projection, I will not estimate any numbers for rent expense because I have already prepaid it.

Cash flow projections are one of the tools in a business planning toolbox. I recommend doing cash flow projections at least once a quarter. While profits are good, a business needs cash to survive. Doing regular projections alerts the business owner of areas that need work before it is too late.

Lastly, in accounting numbers are NEVER RANDOM. There is always a logical explanation why numbers are presented the way they are. Your numbers should tell a story and every number should tie in neatly with the rest of the story.