Cash flow software built with VAT, Sales Tax or GST

How to show VAT in cash forecasts

One of the difficulties in preparing cash flow forecasts for many accountants and businesses is how to deal with VAT (or Sales Tax and GST). This is because most cash flow forecasts also include a forecast profit and loss report as well. The complication arises because the amounts included on the cash flow forecast report are not the same as those included on the forecast profit and loss report. Let’s take a look at how this works…

Cash flow software built with VAT, in 15 seconds…

Due to the complications involved with preparing cash flow forecasts for VAT registered businesses, it makes sense to use cash flow software built with VAT. Whilst it’s okay to prepare a cash flow forecast from scratch using Excel spreadsheets, it takes time to work out the figures to be include on the cash flow report (i.e. including VAT), vs those on the forecast profit and loss report (i.e. net of VAT).

Is VAT included in a cash flow forecast?

For businesses that are registered for VAT, must include VAT in the amounts contained in the cash inflows and cash outflows on the cash flow forecast. If in your country you don’t have VAT, as is the case in the UK and Europe, the same applies if you have Sales Tax or GST in your country.

The reason for using VAT inclusive numbers on your cash flow forecast report is that the flow of money is to show the total cash amount received or paid. This applies whether you are dealing with money received or expended.

This is because all businesses (VAT registered or not or the equivalent in your country) receive money inclusive of VAT. But they also spend cash inclusive of VAT too.

The complication of cash flow forecasts regarding profit and loss reports

With that said about including amounts inclusive of VAT on the cash flow report, the amounts on the forecast profit and loss will be included net of VAT instead. This can become complicated to calculate using a spreadsheet. This is especially true if you’re trying to make your figures balance correctly on your projected balance sheet.

The added complication is to make sure you include the appropriate payments or receipts for the amount of VAT paid to or receive from the relevant tax authorities. Plus to include the appropriate balance on the balance sheet too.

Cash flow software built with VAT

For the reasons explained above regarding VAT complications, this is why it makes sense to save time by using cash flow software built with VAT.

This way, you simply focus on the actual numbers to be included in the forecasts. As compared with wasting valuable time working out formulas. Plus puzzling over which numbers to include on which report.

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