What Is the Formula for Beginning a Cash Balance in a Cash Flow?

by Dennis Hartman; Updated September 26, 2017

Cash flow accounting is an important aspect of operating a business. Cash flow refers to the rates at which money enters and leaves an organization. It has nothing to do with how much money a business is worth or how much it earns in revenue. Every cash flow statement includes a beginning cash balance on a given date.

Cash Flow Cycle

Accountants prepare cash flow statements to cover business cycle timeframes, such as fiscal years and quarters. However, as a process, cash flow doesn't start and stop on any consistent dates. Rather, cash flow is a continuous cycle. For any given day, a business has a given cash balance, which changes as soon as the company performs a financial transaction. A beginning cash balance only refers to the cash balance on the day that begins the period covered by a specific cash flow statement.

Beginning and Ending Balance

Because of the cyclical nature of cash flow, the beginning cash balance is simply the ending cash balance from the previous cash flow statement. This means that the process and formula for computing a beginning cash flow is the same as the process for determining an ending cash flow, only viewed from different time perspectives. Accountants use cash flow statements to find ending balances and track changes in cash balance along the way, but in doing so they are also calculating beginning balances for future accounting periods.

Formula and Calculations

Cash flow statements reveal balances through simple additions and subtraction. The basic formula for calculating or checking a beginning balance is the ending balance, plus all cash outflow, minus all cash inflow. The formula for a beginning balance for a future accounting period is the beginning balance of the past period, minus all cash outflow, plus all cash inflow. In a cash flow statement, cash inflow refers to money received from the sale of assets, the sale of goods and services, investment interest, stock dividends, and the sale of equity, or stock. Cash outflow includes payroll expenses, taxes, payments for raw materials or inventory, loans offered to others and stock dividends paid to investors.


When an investor or analyst reads a cash flow statement, the beginning balance has limited significance. Instead, information about a company's financial position comes from the difference between the beginning cash balance and the ending cash balance. When a business is founded, its initial cash flow statement begins with its cash balance, or the money it has, in cash, ready to spend. Beyond this point, cash flow statements represent only change in cash balances. An increase between the beginning cash balance and the ending cash balance simply means that the company spent more in cash than it took in. If its cash balance is well above zero, then the important question becomes what the business spent its cash on and whether those expenditures were worthwhile.