What is the Receipts and Disbursements Method?

The receipts and disbursements method is used to construct a cash flow forecast. It is derived from actual and estimated accounts receivable and accounts payable. The source information has a relatively short time horizon, so the method's accuracy declines rapidly beyond a few months of forecasting. Within the near term, the results of this method can be quite accurate. Outside of the period covered by accounts receivable and accounts payable, a business needs to use alternative cash forecasting methods that tend to be less accurate.

An example of a cash flow forecast that was developed using the receipts and disbursements method appears below.