Monthly Accounting Cash Flow Formula
Learn how monthly net cash flow, closing cash balance, and the cash outflow ratio are calculated.
A monthly cash flow calculation tracks cash actually received and paid during the month. It helps show whether current receipts cover current payments and how much cash may remain at month end.
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Closing Cash Balance
Where:
Start with the cash available at the beginning of the month, add all cash received, and subtract all cash paid out.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| openingCashBalance - Opening cash balance | Cash available at the beginning of the month. | currency |
| cashSales - Cash sales received | Sales receipts received during the month, including card, cash, or bank transfer payments. | currency |
| customerCollections - Customer payments collected | Cash received from customers for invoices or credit sales. | currency |
| otherCashInflows - Other cash inflows | Other cash received, such as refunds, grants, interest, or owner contributions. | currency |
| operatingExpenses - Operating expenses paid | Cash paid for ordinary business operating costs. | currency |
| payrollPayments - Payroll payments | Cash paid for wages, salaries, payroll taxes, and employer contributions. | currency |
| debtPayments - Debt repayments | Loan principal and interest payments made during the month. | currency |
| capitalSpending - Capital spending | Cash spent on equipment, software, vehicles, improvements, or other long-term assets. | currency |
Step-by-Step Calculation
Calculate total cash inflows
Add all cash received during the month. The opening cash balance is not included in this total.
totalCashInflows = cashSales + customerCollections + otherCashInflows
Calculate total cash outflows
Add all cash payments made during the month, including payroll, debt service, and capital purchases.
totalCashOutflows = operatingExpenses + payrollPayments + debtPayments + capitalSpending
Calculate net cash flow
A positive result means more cash came in than went out during the month. A negative result means outflows were higher.
netCashFlow = totalCashInflows - totalCashOutflows
Calculate closing cash balance
Add the monthly cash movement to the beginning cash balance to estimate cash at month end.
closingCashBalance = openingCashBalance + netCashFlow
Calculate the cash outflow ratio
This expresses monthly cash paid out as a percentage of cash received while avoiding division by zero.
cashOutflowRatio = totalCashOutflows / max(totalCashInflows, 0.01) * 100
Example: Monthly cash flow for a small business
Total cash inflows
$18,000 + $12,000 + $1,000
$31,000
Total cash outflows
$14,500 + $8,500 + $2,000 + $1,500
$26,500
Net cash flow
$31,000 - $26,500
+$4,500
Closing cash balance
$25,000 + $4,500
$29,500
Cash outflow ratio
$26,500 / $31,000 × 100
85.5%
Final Result
Estimated net cash flow is +$4,500, with an estimated closing cash balance of $29,500.
Assumptions
- ✓All entries represent cash actually received or paid in the selected month, not revenue earned or expenses incurred.
- ✓The opening cash balance is available for use and is measured consistently with the monthly entries.
- ✓Each cash receipt and payment is entered once only.
- ✓Non-cash items, such as depreciation and amortization, are excluded.
- ✓Amounts use consistent currency and sales-tax treatment.
Limitations
- !The calculation does not show the date within the month when cash is received or paid.
- !It does not include unentered liabilities, future commitments, overdraft terms, or restricted cash.
- !A positive closing balance does not by itself show whether future obligations can be met.
- !Results can differ from bank balances because of pending transactions, timing differences, or entry errors.
Common Mistakes to Avoid
Entering invoice sales instead of only the cash collected from customers during the month.
Counting the opening cash balance again as a monthly cash inflow.
Leaving out payroll taxes, employer contributions, loan payments, or recurring subscriptions.
Treating equipment purchases as non-cash because they may be capitalized in accounting records.
Mixing amounts that include sales tax with amounts that exclude it.
Using a profit and loss total instead of cash payments and receipts.
Related Formulas
Frequently Asked Questions
What is the formula for monthly net cash flow?
Monthly net cash flow equals total cash inflows minus total cash outflows.
How is closing cash balance calculated?
Closing cash balance equals opening cash balance plus net cash flow for the month.
Is the opening balance included in total cash inflows?
No. It is starting cash, not cash received during the current month.
What does a cash outflow ratio above 100% mean?
It means total cash outflows exceeded total cash inflows during the month.
Should loan principal be included in monthly cash flow?
Yes. Both principal and interest payments reduce cash available during the month.
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