MANAGING CASH,

ACCOUNTS RECEIVABLES
AND INVENTORIES
Cash, accounts receivables and
inventories are considered liquid
asset of an organization which
needs to be manage well.
CASH refers to any medium of
exchange that a bank will accept for
deposit at face value. It includes coins,
currency, checks, money orders, bank
deposits and drafts.
ACCOUNTS RECEIVABLES
are claims against customer arising
from sale of services or goods on a
credit.
INVENTORIES are assets which are: a)held
for sale in the ordinary
course of business;
b) in the process of production for such
sale;
c) in the form of materials or supplies to
be consumed in the production
process or in the rendering of
services.
The following information sheet
contains important information about
the tools managing in cash,
accounts receivables and
inventories.
Directions/Instructions:
Exercise 1. From the Statement of Financial
Position of ABCDE Company, find the value
of cash, accounts receivables, and inventories
from the assumptions below.
ASSUMPTIONS:
a) Cash is 75% of accounts
receivable.
b) Accounts receivable is 40% of
the value of the land.
c) Inventory is 38,000 lower than
cash value
Exercise 2. Read carefully the
situation below and perform what
is asked for.
1. Malunggay Company is concerned about
managing cash efficiently. On average,
inventories have an age of 120 days and
accounts receivable are collected in 90 days.
Accounts payable are paid approximately 30
days after they arise. The firm has annual sales
of about P35 million. Assume there is no
difference in the investment per peso of sales
in inventory, receivables, and payables and
that there is a 360-day year.
a. Calculate the firm’s
operating cycle.

b. Calculate the firm’s cash

conversion cycle.
2. Khyneth Industries, a heavy
equipment contractor, is
a cash budget for July, August, and
September. Khyneth’s sales in May
and June were 200,000 and 300,000
respectively. Sales of 400,000, 350,000,
and 300,000 have been forecast for
July, August, and September
respectively.
200,000, 175,000 and 200,000 generated
accounts receivable collected for the second
quarter of the year. In September, the firm
will receive a 50,000 dividend from stock in
a subsidiary.
REQUIRED: Prepare the
cash receipts section of
the cash budget.