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Forecasting Financial Statements > Building a Cash Budget
Building a Cash Budget
• Receipts
• Payments
• The Forecast Budget
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Forecasting Financial Statements > Building a Cash Budget
Receipts
• Cash receipts come from internal sources, such as cash from sales and accounts
receivable, and external sources, such as bank loans or accounts receivable
financing.
• A company needs to understand the timing involved with cash-producing or cashdepleting activities before it can properly plan for cash flows.
• The receipt cycle is the total time between when products or services are
delivered and when payment from the customer clears the bank.
• The overall objective for a company should be to decrease the receipt cycle.
Flow Chart of Cash Flows
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Forecasting Financial Statements > Building a Cash Budget
Payments
• Cash payments must be made for relevant expenses, which include those to
suppliers for inventory or other supplies, employees for wages, government for
taxes, and lenders for interest on borrowed money.
• A company's objective in regards to the cash dispersement cycle should be to
increase the cycle time, or delay making payments until they are due.
• Typical cash outflows from investing activities include purchase of capital assets,
purchase of bonds/notes or shares of other entities, and loans to other entities.
• Typical cash outflows from financing activities include payments of dividends to
the company's own shareholders, redemption (repurchase) of company's own
Sample Paystub
shares, and repayment of principal and interest on company's own bonds or
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notes.
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Forecasting Financial Statements > Building a Cash Budget
The Forecast Budget
• Cash is the most liquid of assets, and it represents the lifeblood for growth and
investment.
• If a business runs out of cash and is not able to obtain new financing, it will
become insolvent.
• In order to generate cash, a company manages activities. such as billing
customers as quickly as possible, disbursing payments only when they come due,
collecting cash on overdue accounts, and investing idle cash.
• What a cash flow forecast does is estimate cash inputs and outputs over a period
of time, usually at least 90 days, in order to give you assurance that your business
Forecast Example
will have the cash necessary to meet its obligations to others.
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Appendix
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Forecasting Financial Statements
Key terms
• disbursement Money paid out or spent.
• insolvent Unable to pay one's bills as they fall due.
• lien A legal claim; a charge upon real or personal property for the satisfaction of some debt or duty.
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Forecasting Financial Statements
Flow Chart of Cash Flows
This figure charts the flow of cash in and out of a business.
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Wikispaces. "IB2-Business-p7 - 3.3 Working Capital." CC BY-SA http://ib2-business-p7.wikispaces.com/3.3+Working+Capital View on Boundless.com
Forecasting Financial Statements
Sample Paystub
This is an example of a paystub to an employee, one of the most significant cash disbursements necessary for a company.
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Wikipedia. "Payroll." GNU FDL http://en.wikipedia.org/wiki/Payroll View on Boundless.com
Forecasting Financial Statements
Forecast Example
This is an example of a cash flow forecast.
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Wikispaces. "IB2-Business-p7 - 3.3 Working Capital." CC BY-SA http://ib2-business-p7.wikispaces.com/3.3+Working+Capital View on Boundless.com
Forecasting Financial Statements
A company sells produce to small farmer markets and has
receivables of $30,000. It believes that it may face a series of
short-term cash deficiencies in the near future. Which of the
following is an option the company can pursue?
A) Borrow against its receivables from a financing company.
B) Borrow against its inventory from a financing company.
C) All of these answers.
D) Obtain a line of credit with its bank.
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Forecasting Financial Statements
A company sells produce to small farmer markets and has
receivables of $30,000. It believes that it may face a series of
short-term cash deficiencies in the near future. Which of the
following is an option the company can pursue?
A) Borrow against its receivables from a financing company.
B) Borrow against its inventory from a financing company.
C) All of these answers.
D) Obtain a line of credit with its bank.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Forecasting Financial Statements
A company wants to increase the amount of time in its
disbursement cycle. Which of the following is a valid way to do
that?
A) Use credit cards as often as possible.
B) All of these answers.
C) Mail payment to suppliers for contractual obligations.
D) Pay for purchases using checks.
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Forecasting Financial Statements
A company wants to increase the amount of time in its
disbursement cycle. Which of the following is a valid way to do
that?
A) Use credit cards as often as possible.
B) All of these answers.
C) Mail payment to suppliers for contractual obligations.
D) Pay for purchases using checks.
Free to share, print, make copies and changes. Get yours at www.boundless.com
Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Forecasting Financial Statements
A company wants to forecast its cash flows for the next 30 days.
Which method should it use?
A) Adjusted Net Income Method.
B) Pro-forma balance sheet method.
C) Accrual reversal method.
D) Direct Method.
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Forecasting Financial Statements
A company wants to forecast its cash flows for the next 30 days.
Which method should it use?
A) Adjusted Net Income Method.
B) Pro-forma balance sheet method.
C) Accrual reversal method.
D) Direct Method.
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Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Forecasting Financial Statements
Attribution
• Wikibooks. "Sustainable Business/Finance." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Sustainable_Business/Finance#Cashflow_budget
• Wikipedia. "Cash flow forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Cash_flow_forecasting
• Wikispaces. "goldkindgrade12accounting - Chapter 18 Notes - Cash Flow Statements." CC BY-SA
http://goldkindgrade12accounting.wikispaces.com/Chapter+18+Notes+-+Cash+Flow+Statements
• Wiktionary. "disbursement." CC BY-SA 3.0 http://en.wiktionary.org/wiki/disbursement
• OER Commons. License: Other http://www.oercommons.org/courses/managing-cash-flow/view
• Wikipedia. "Cash flow forecasting." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Cash_flow_forecasting
• Connexions. "Financing Your Organization - Advanced reports and analyses." CC BY 3.0 http://cnx.org/content/m35491/latest/
• Wiktionary. "insolvent." CC BY-SA 3.0 http://en.wiktionary.org/wiki/insolvent
• Wikibooks. "Sustainable Business/Finance." CC BY-SA 3.0
http://en.wikibooks.org/wiki/Sustainable_Business/Finance#Cashflow_budget
• Wikispaces. "IB2-Business-p7 - 3.3 Working Capital." CC BY-SA http://ib2-business-p7.wikispaces.com/3.3+Working+Capital
• Wiktionary. "lien." CC BY-SA 3.0 http://en.wiktionary.org/wiki/lien
• OER Commons. CC BY http://www.oercommons.org/courses/managing-cash-flow/view
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