Normally there are no interest expenses associated

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Unformatted text preview: estimate receivables using assumptions nimble enough to offer a useful estimate, but simple enough to manage. For example, in the sample case illustration here, we use estimated collection days to calculate amounts received as a manner of estimating the time that passed between making the sale and receiving the payment. SAMPLE CASE RECEIVABLES DETAIL The collection days estimator sets the amounts received. (Amounts shown in thousands. Numbers may be affected by rounding.) HURDLE: THE BOOK 16.4 ON BUSINESS PLANNING The calculation in the Receivables Detail example on the previous page is relatively simple. You can see how each month starts with beginning balance, adds new sales on credit, subtracts money received, and then calculates ending balance. Notice that the amounts received in March are the same as the sales on credit for January (shown in the Starting Income Statement illustration on page 16.2) because the collection days estimator is set to 60 days. To emphasize the importance of collection days as an estimator, look at the following example with the same logic, but set to 90 days instead of 60 days. In this case sales on credit from January are received a month later, in April: IMPORTANCE OF COLLECTIONS In this second view, when collection days are stretched, less cash comes in from receivables. The difference affects cash flow. (Amounts shown in thousands. Numbers may be affected by rounding.) This simple change turns acceptable cash flow into cash problems (see the discussion on Collection Days in Chapter 14: About Business Numbers). Now take a look back at the illustration on page 16.3 (Sample Case Cash Received). The first two rows in the cash received section are directly related to standard operations. Cash Sales plus Cash from Receivables (sales on credit) equals total Cash from Operations (also known as Total Sales). The following rows are less direct and less readily available from simple assumptions. So we set these aside as “Additional Cash Received.” 3. The third row, “Non Operating (Other...
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