Which of the following is a common cash flow projection error related to cash balance status?

• A. Omitting beginning balance
• B. Not balancing to projected budget
• C. Inaccurate revenue projections
• D. Cash is negative

Answer: (D)

The situation being tested is cash balance status in a cash flow projection. The clearest sign that a forecast isn’t meeting liquidity needs is showing a negative cash balance—ending cash below zero at any point. When the projection indicates cash is negative, it directly communicates that there isn’t enough cash on hand to cover projected outflows given the timing of inflows and outflows. This prompts action to fix the forecast: adjust timing or amounts of receipts and payments, seek interim financing, or cut nonessential spending to ensure the cash balance stays nonnegative.

Other issues in forecasting—omitting the beginning balance, not aligning to the budget, or inaccuracies in revenue projections—are important data or planning problems, but they don’t as directly express the actual cash-on-hand status in the forecast the way a negative cash balance does.