Intuit Bookkeeping Professional Certificate Practice Exam 2026 - Free Bookkeeping Practice Questions and Study Guide

The primary purpose of a cash flow forecast is to estimate future cash inflows and outflows. This tool allows businesses to predict how much cash they expect to receive and spend over a specific period, helping them plan for their financial needs. By projecting cash flow, a business can avoid potential shortfalls, ensure they have enough liquidity to meet obligations, and make informed decisions regarding investments, hiring, and other expenditures.

In contrast, providing historical financial performance focuses on past activities rather than future expectations, which does not align with the intent of a cash flow forecast. Preparing an annual budget is a broader financial planning process that may utilize cash flow forecasts as one element; however, it encompasses more than just cash flow estimation. Evaluating employee expenses deals specifically with compensation and benefits, which is a narrower focus and does not capture the comprehensive view of cash flows that the cash flow forecast provides.