Cash planning

Cash planning
To prepare a cash plan (to estimate the future cash flows) (in & out –
flows) of any project.
You should prepare cash budget which includes the expected items
related to the cash during a specific period of time (expected cash inflows
& expected cash outflows).
Cash inflows – Cash outflows = Net cash flow
Ex.
Cash budget July August
- Cash inflows $100,000 $20,000
Cash outflows (70,000) (70,000)
Net cash flow 30,000 (50,000)
+ Beginning cash balance 10,000 40,000
Ending cash balance 40,000 (10,000)
Minimum cash during the month (5,000) (5,000)

Cash available for investment 35,000 --

Short term debts needed -- (15,000)

The beginning cash balance of each month is the ending cash balance of
the previous month.

Ex.
You have the following information to prepare the cash budget during the
period from July, 2009 to Dec. 2009.
 The sales policy of the corporation depends on sales on credit.
Credit sales will be collected as following:
 20% of sales will be collected in the same month.
 70% of sales will be collected in the next month.
 10% of sales will be collected in the second month.
 The sales revenues during this period are as following:
May $10,000
June 10,000
July 20,000
August 30,000
September 40,000
October 20,000
 November 20,000
December 10,000
January 10,000

 The expected purchases during this period are as following:

 70% of sales of the next month, and its value will be paid in the
next month of purchase.
 The minimum cash balance for each month is $5,000.
 Beginning balance of July is $6,000.
 New machine will be purchased during July with cost $10,000
cash will be paid in September.
 The expected rent expense for each month is $500.
 Depreciation expenses are $600.
 Taxes will be paid on August amounted to $8,000.
 The expected salaries and other expenses are as following:
Month Salaries Other expenses
May $1,500 200
June 1,500 200
July 1,500 200
August 2,000 300
September 2,500 400
October 1,500 200
November 1,500 200
December 1,000 100
January 1,500 200

Answer
First draft for sales collection
May June July August Sep. Oct. Nov. Dec.
May $ 10,000
20% $ 2,000
70% $ 7,000
10% $ 1,000
June $ 10,000
20% 2,000
70% 7,000
10% $ 1,000
July $ 20,000
20% 4,000
70% 14,000
10% $ 2,000
August $ 30,000
20% 6,000
70% 21,000
10% $ 3,000
Sep. $ 40,000
 20% 8,000
70% 28,000
10% $ 4,000
Oct. $ 20,000
20% 4,000
70% 14,000
10% $ 2,000
Nov. $ 20,000
20% 4,000
70% 14,000
10%
Dec. $ 10,000
20% 2,000
70%
10%
Total collections $ 2,000 $ 9,000 $ 12,000 $ 21,000 $ 31,000 $ 35,000 $ 22,000 $ 18,000
Second draft for purchases
Month Purchases Payment
June $ 14,000
July 21,000 14,000
August 28,000 21,000
September 14,000 28,000
October 14,000 14,000
November 7,000 14,000
December 7,000 7,000

July August Sep. October November December

Cash inflows from sales $12,000 $21,000 $31,000 $35,000 $22,000 $18,000
Cash Outflows
Purchases 14,000 21,000 28,000 14,000 14,000 7,000
New machine -- -- 10,000 -- -- --
Rent 500 500 500 500 500 500
Taxes -- 8,000 -- -- -- --
Salaries 1,500 2,000 2,500 1,500 1,500 1,000
Other expenses 200 300 400 200 200 100
Total cash outflows 16,200 31,800 41,400 16,200 16,200 8,600
Expected net cash flows (4,200) (10,800) (10,400) 18,800 5,800 9,400
Exp. beg. Cash balance 6,000 1,800 (9,000) (19,400) (600) 5,200
Exp. Ending Cash 1,800 (9,000) (19,400) (600) 5,200 14,600
Balance
Minimum Cash balance (5,000) (5,000) (5,000) (5,000) (5,000) (5,000)
short term debt required 3,200 14,000 24,400 (5,600) -- --
Investment Available -- -- -- -- 200 9,600

EXAM.
Answer the fallowing questions
You have the following information
The expected sales for July 2010 $ 100000
The expected collection from sales for July 2010 is 80% .
The expected purchases for July 2010 $ 60000
The expected payments for purchases for July 2010 is 60%
The expected payments for salaries and wages for July 2010
$ 2000 .
The expected payments for rent for July 2010 $ 1000 .
The expected payments for taxes expense for July 2010 $
1000 .
The expected cash at the beginning of July 2010 $ 10000 .
The expected minimum cash for July 2010 $ 3000 .
Required:
prepare the cash plan ( cash budget ) for July 2010