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Unformatted text preview: ected by rounding.)
1. The ﬁrst row is “Cash Spending,” which is money spent immediately to pay expenses that are
not invoiced (due at a later date). The most obvious example is the spending for wages and
salaries and other compensation-related payments you make every month to your employees
and the government. These obligations don’t go into accounts payable. Instead, you pay them
every month. In most companies you can assume that wages and related personnel expenditures
are paid the same month incurred. 2. The second obvious use of cash is “Bill Payment.” This accounts payable balance is money you
owe. Every month, you pay off most of this, depending on how quickly you pay. I recommend
estimating payments based on some simple calculations that key on estimated average payment
days, as shown in the illustration on the following page: HURDLE: THE BOOK 16.6 ON BUSINESS PLANNING PAYMENT DETAIL Payment delays affect cash ﬂow. The calculations here estimate payments made based on the
assumption that payments are made 30 days after bills are received. (Amounts shown in thousands.
Numbers may be affected by rounding.)
In the example here, the calculations start with the ending balance of accounts payable from
the previous month, then add new obligations, then subtract obligations paid directly in cash,
as well as this month’s bill payments, to calculate this month’s ending balance. This month’s
bill payments depend on the assumption of waiting 30 days, on average, before paying bills.
The ﬁrst two rows, cash spending and bill payment, are spending from normal operations. They
can be linked to spending in the income statement through assumptions for bill payments and
inventory management. The other ways to spend money happen beyond and outside of the
Proﬁt and Loss.
3. The “Non Operating (Other) Expenses” row is the complement of the Non Operating (Other)
Income in the ﬁrst part of the cash ﬂow. These are expenses outside of normal operations. They
are there to accommodate companies that...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.
- Winter '09