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Unformatted text preview: ’s sold. The cost of inventory shows up in the cash ﬂow when it’s paid for,
regardless of when it’s sold, usually as cash spending or bill payments.
Not all companies manage inventory. Product-related companies normally do have inventory, and
service-related companies normally don’t. There are many exceptions, though, so if you have doubt,
ask your accountant or somebody connected to your company who knows. ESTIMATING INVENTORY Use simple assumptions to estimate inventory ﬂow and inventory purchases. (Amounts shown in
thousands. Numbers may be affected by rounding.)
Inventory gets into your cash ﬂow when you pay for it. Estimate your inventory needs as months
of inventory on hand, then estimate inventory ﬂow as a matter of estimating sales and inventory
purchases. Payments depend on the rest of your payments policy, because inventory purchase
amounts enter the system when an invoice is received, but they are paid when the related invoices are
In the illustration above, the beginning inventory balance supplies the amounts required until the
third month, when additional inventory is purchased. That purchase goes into accounts payable, and
is paid as part of the normal ﬂow of bill payments. Inventory purchase is the bulk of the $346,000 new
obligations in March shown in the Payments Details illustration on the previous page. Calculating the Cash Balance
When you’re done with both sections — receipts and spending — then you can calculate cash ﬂow
by subtracting spending from receipts. Cash ﬂow is the change in the balance from one month to
another. You calculate cash balance by taking the ending balance from the previous period and adding
(or subtracting) cash ﬂow. The sample cash plan shown here below does just that. HURDLE: THE BOOK 16.8 CALCULATING THE ON BUSINESS PLANNING CASH BALANCE Calculating cash ﬂow and cash balance isn’t always intuitive, but understanding its two main
sections is important. (Amounts shown in thousands and...
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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