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How to calculate net cash from a Xero trial balance
Fractional FD/CFO, FD/CFO of the Year 2019 (British Accountancy Awards).
Written up from his video by Own Your Numbers. Published 28 September 2026.
Net cash = cash in the bank + money owed to you − money you owe.
Cash cushion = net cash ÷ average monthly cost base, in months.
From a Xero trial balance, add the bank balance, receivables and other debtors such as a VAT refund due, then subtract payables and other liabilities such as expense claims. Own Your Numbers applies set rules on top: prepayments and a few other balances, such as intercompany loans, are left out.
In two short films, Ciaran O'Donnell shows how to calculate net cash for Xero's own Demo Company (UK). In the first he gets the answer from Own Your Numbers in two clicks. In the second he does it the long way: he downloads the trial balance, calculates it by hand in Excel, and checks every figure against the app.
Why start from the trial balance
The trial balance is one of Ciaran's favourite reports for any business, because it puts revenue, costs, assets and liabilities on one list: every account in your accounting system with its balance. Go down it with your bookkeeper and you can agree that everything is correct and complete. If it is, you know all the revenue and costs are in and the balance sheet is complete, which is the point at which the net cash figure can be trusted.
Worked example: Xero's Demo Company at 31 July 2026
Figures from the films, from the Demo Company's 31 July 2026 seven-column trial balance, rounded to the pound, so the lines sum to £1 away from the total. The Demo Company's data changes over time, so a later run may show different figures.
Cash in the bank: £10,048.
Plus receivables of £3,056 and a VAT refund due of £663.
Minus accounts payable of £11,583.
Minus other liabilities of £4,166: an expense claim and a historical adjustment.
Net cash: minus £1,983.
Average monthly cost base, June and July: £6,865.
Net cash is below zero, so there is no cushion: critical risk.
So the Demo Company has about £10,000 in the bank and still owes more than it holds and is owed. The bank balance actually went up by £9,794 in July. On its own that looks like good news; net cash tells a different story.
For the cost base, Ciaran takes the July costs from the trial balance and averages them with June's: the average monthly cost base over the past two months.
The same number, by hand and in two clicks
Pasted side by side, the hand calculation and the app agree on cash, net cash, cost base and cushion, and on the line items underneath them: receivables, the VAT refund, payables and other liabilities. Ciaran's verdict: you can calculate net cash yourself, and it might take twenty minutes and you might never get there. Or you can get the same figure in about twenty seconds.
The first film shows the quick route: pick the organisation and the month end, click run, and the app reads the figures from Xero without writing anything back. It gives the cushion, the risk rating and a short list of priorities, such as reviewing the latest profit and loss and a forecast. The report can be copied into an email, sent to WhatsApp or downloaded as a PDF.
Why clean books change the answer
Ciaran was curious about the historical adjustment in the Demo Company's other liabilities. If it were really income rather than a liability, leaving only the expense claim, net cash would be plus £2,148, and the cushion would be 0.3 months. That is a cushion, but still very high risk. One unexplained line moves the verdict from critical to very high risk, which is why he stresses knowing what is in your books at any point and getting them clean.
Reading the risk rating
In the first film Ciaran walks through the bands. With the cushion rounded to one decimal place:
- Critical: no cushion, meaning net cash is zero or negative.
- Very high risk: a cushion under one month (0.0 to 0.9).
- High risk: one to two months (1.0 to 1.9).
- Medium risk: two to three months (2.0 to 2.9).
- Low risk: three months or more.
Low risk means the cash cushion, rounded to one decimal place, is 3.0 months or more: in Ciaran's words, about three months of the cost base in net cash.
Net cash and trial balance questions, answered briefly
What is the formula for calculating net cash?
Net cash is cash in the bank plus accounts receivable and other debtors, minus what you owe suppliers and other liabilities such as VAT, PAYE and expense claims. Own Your Numbers leaves out prepayments and certain other balances, such as intercompany loans. Divide net cash by your average monthly cost base over two months to get your cash cushion in months.
Where is cash in a trial balance?
In the bank account lines. In Ciaran O'Donnell's Demo Company example the trial balance shows cash in the bank of £10,048, alongside receivables, the VAT refund, payables and other liabilities, which are the other lines you need for net cash.
What is a trial balance in simple words?
A list of every account in your accounting system with its balance: income, costs, assets and liabilities in one place. Ciaran recommends going through it with your bookkeeper to understand the coding and check that the figures are correct and complete.
Can a business have money in the bank and negative net cash?
Yes. Xero's Demo Company had £10,048 in the bank at 31 July 2026 and net cash of minus £1,983, because it owed more than it held and was owed. With net cash below zero there is no cushion, and the risk rating is critical.
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