5.1·7 min read
Cash Is the Plug
When every account is forecast and the cash flow statement explains the change in cash, the balance sheet balances on its own.
By the end you can
- ✓Explain why cash is the balancing plug
- ✓Order the build so the balance sheet self-balances
Here is the insight that makes three-statement modeling click. You forecast the , then the balance-sheet accounts (via roll-forwards and ), and the captures every one of those changes and applies the rules of cash. The cash line on the is then just the plug that the produced.
- Forecast the , ending in .
- Roll forward the non-cash balance-sheet accounts (, debt, equity, ).
- The converts all of that into one number: the change in cash.
- Ending cash on the = beginning cash + that change. The now balances.
Why it balances automatically
If the faithfully captures the change in every asset, liability, and equity account, then the cash it computes is exactly the amount that keeps Assets = Liabilities + Equity. A balance-sheet that won't balance means a change was missed or double-counted.
Check yourself
In a correctly built model, the balance sheet balances because: