aa - ABC Company; relation between net income and cash...

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Cash  Balance at  Beginning  of Month + Cash  Receipts  from  Customers = Cash  Disbursements  for Production  Costs Cash  Balance  at End of   the Month Month ABC Company; relation between net income and cash flows.) a. January $ 875 $ 1,000 $ 750 $ 1,125 February 1,125 1,000 1,500 625 March 625 1,500 1,875 250 April 250 2,000 2,250 0 b. The cash flow problem arises because of a lag between cash expenditures incurred in producing goods and cash collections from customers once the firm sells those goods. For example, cash expenditures during February ($1,500) are for goods produced during February and sold during March. Cash is not collected from customers on these sales, however, until April ($2,000). A growing firm must generally produce more units than it sells during a period if it is to have sufficient quantities of inventory on hand for future sales. The cash needed for this higher level of production may well exceed the cash received from the prior period's sales. Thus, a cash shortage develops.
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This note was uploaded on 04/05/2009 for the course ORIE 350 taught by Professor Callister during the Summer '08 term at Cornell University (Engineering School).

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aa - ABC Company; relation between net income and cash...

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