Archive for the ‘Cash Flow’ Category
Examples of cash receipts are the collection of bills, collection of loans, interest charges, borrowing, rent collection, etc. Examples of cash outflows are paying bills, paying taxes, payroll, loan payments, interest payments, utility payments for water or electricity, etc. The difference between income and cash outflow is known as balance, which may be favorable (when revenues are greater than expenses) or unfavorable (when expenses are greater than income).
Contrary to the State or the Income Statement, Cash Flow shows what really comes out in cash or enter “box”, for example, charges a sale actually took effect. In the cash flow, the term gain or loss is not used.
The importance of cash flow is that it lets us know the company’s liquidity, i.e. knowing how much cash is counted, so that such information can make decisions such as:
* How we can buy merchandise.
* If you can buy in cash or is necessary or preferable to apply for credit.
* If necessary or preferable to collect cash or credit can be granted.
* If you can pay debts on their due date or need to ask for a refinancing or new financing.
* If we have enough surplus money to invest, for example, by purchasing new machinery.
* If necessary to increase the available, for example, for a possible investment opportunity.
Projected Cash Flow
To develop a cash flow we have information on earnings and cash outflows that the company has made, this information will get from the accounts we have made.
But we can also prepare a Projected Cash Flow (also known as Cash Budget), for which we need projections of future cash receipts and disbursements made by the company for a period of time.
The importance of developing a Projected Cash Flow is that it allows, for example:
* Anticipate future deficits (or lack) of cash and, thus, for example, to take timely decision to seek funding.
* Establish a solid foundation for the requirement of credit, for example, by presenting it within our business plan or project.