1. Teaching cash flow management Cash is King Greg Malkin
Director, Entrepreneur Institute
x7362

3. Syllabus 3 week unit plan

4. Profit versus Cashflow
Profit = Revenues - Expenses
Cashflow = Deposits into and withdrawals from our bank account.

5. Profit versus Cashflow
Matching = match revenue & expenses in the same period to determine profit.
Timing = Cashflow does not necessarily match the recognition of revenue and expenses.

6. The Cash Management Process
Estimate receipts (cash inflows)
Plan expenditures (cash outflows)
Limit spending to budget (cash control)
Compare budgeted to actual cashflows (evaluation)
We think it is appropriate to point out to your students that cash management is simply good management and for many organizations the operational management process itself.

7. Cash Management Example
Events
Purchase $1,000 of product in September with net 30 credit
Pay for product from supplier in October
Gross margin is 50%
Pay monthly salaries of $200
Product sales
Sept
Oct
Nov
Cash
250
500
Credit
Total sales
1000

8. Aug
Sept
Oct
Nov
Dec
Cash Flow
Starting 50
-400
150
Cash in
Cash sales
250
500
A/R
Loan
Cash Out
A/P
-1000
Payroll
-200
Net cash
Ending
200
B/S
Cash
Inventory
Beg
750
Purchase
1000
End
Total Assets
1050
350
400
Liabilities
Note Payable
Equity
I/S
Sept-Dec
Revenue
2000
COGS
Gross Profit
Expenses
800
Net Profit
300

9. Homework Assignment

10. Case Study Carrie Snowblower

11. Carrie’s Snowblowers (Q4 Income Statement)
Fourth Quarter Income Statement, Carrie Company
$ 85,689
Net income
3,311
1% per month on ending balance
Interest payable
131,000
Cash and noncash
SG&A
Less:
220,000
Gross margin
2,200 units x $100
Cost of Sales
$440,000
2,200 units x $200
Sales
Will the company have to borrow money even though it is so profitable?

12. Carrie’s Snowblowers (Cash Receipts)
30% of all sales are for cash, 60% of receivables are collected in the month following the sale, 35% are collected two months after the purchase, and the rest become bad debts. There are no accounts receivable outstanding at the beginning of October.
You will need to calculate the budgeted cashflows from sales for January, February and March.
+35% x (70% x $100,000) = $24,500
+ 60% x (70% x $300,000) = $126,000
= 30% x $100,000 = $30,000
Cash collections for January = $180,500
Cash collections for February = ______
+ 35% x (70% x $40,000 = $9,800
+ 60% x (70% x $100,000) = $42,000
= 30% x $300,000 = $90,000
Cash collections for December = $141,800
+ 35% of two month’s previous credit sales
+ 60% of previous month’s credit sales
= 30% of the current sales
Cash collections for the month.
Share/Pair Working with your partner, calculate the cashflows received in February from sales in February, December, and October.
Cash collections for March = ________

13. Carrie’s Snowblowers (Inventory purchases)
- (120% x current month’s sales
+ (120% x next month’s sales
- 200 units
+ 1.2 x 500 units
= 200 units
Purchases for October = 600 units
Purchases for December = ________
Purchases for January = ___________
- 600 units
+ 1,800 units
= 500 units
Purchases for November = 1,700 units
- Beginning Inventory
+ Ending inventory
Sales for the current month
Required purchases during the current month
Share/Pair Verify the calculation of the December and January purchases.
Purchases for February = ___________
Purchases for March = ___________

14. Carrie’s Snowblowers (Purchases payments)
Cost of goods is $100 per unit. Inventories are bought on credit. 45% paid in the month of purchase and 55% paid in the following month. Accounts payable at the beginning of October were $15K.
Purchases = 45% x current month’ purchases + 55% x last month’s
Current month Last month
February purchases
= ____________
January purchases
+ .55 x 1,700 units x $100
= .45 x 300 units x $100
December purchases
= $107,000
+ .55 x 600 units x $100
= .45 x 1,700 units x $100
November purchases
= $109,500
+ $15,000 (given)
= .45 x 600 units x $100
October purchases
= $42,000
Share/Pair Verify the calculation of the payments for January and February.
March purchases
= ____________

15. Carrie’s Snowblowers (Q4 Cash Flow)
Cash Budget for Carrie Company — 4th Quarter
(128,900)
17,300
(90,200)
(16,000)
Excess (Deficit)
$369,500
$144,500
$157,000
$68,000
Total cash requirements
$258,500
$107,000
$109,500
$42,000
Purchases
86,000
32,500
27,500
26,000
SG&A (w/o interest)
25,000
5,000
20,000
Capital equipment
$ 20,000
$20,000
Ending Balance
$148,900
$ 2,700
$110,200
$36,000
Borrowings (Repayments)
Less cash disbursements:
$240,600
$161,800
$66,800
$52,000
Total cash available
$200,600
$141,800
$46,800
$12,000
Sales and Receivables
Cash collections:
$ 40,000
$ 20,000
$40,000
Beginning Cash Balance
4th Quarter
December
November
October

16. Carrie’s Snowblowers Quiz Name: ___________
First Quarter Income Statement, Carrie Company
Net income
1% per month on end of month loan balance
Interest payable
Cash and noncash
SG&A
Less:
Gross margin
units x $100
Cost of Sales
units x $200
Sales
Assume interest is paid on the balance at the end of the month. (Example: if month ending loan balance is $8,500 then interest payment that month will be $85.

17. Carrie’s Snowblowers Quiz Name: ___________
Cash Budget for Carrie Company — 1th Quarter
Excess (Deficit)
Total cash requirements
Purchases
SG&A (w/o interest)
Capital equipment
Ending Balance
Borrowings (Repayments)
Less cash disbursements:
Total cash available
Sales and Receivables
Cash collections:
$20,000
Beginning Cash Balance
1th Quarter
March
February
January

20. Balance Sheet
6/30/86 - Q1
9/30/86 - Q2
12/31/86 - Q3
3/31/87 - Q4
 Current Assets
Cash
$ ,000.00
$ ,000
Receivables
$ ,000.00
$ ,580,000.00
$ ,739,000.00
$ ,741,000
Inventories
$ ,808,000.00
$ ,690,000.00
$ ,166,000.00
$ ,869,000
Prepaid Expenses
$ ,000.00
$ ,000.00
$ ,000.00
$ ,000
Total current assets
$ ,656,000.00
$ ,664,000.00
$ ,203,000.00
$ ,993,000
Fixed Assets
$ ,570,000.00
$ ,808,000.00
$ ,987,000.00
$ ,288,000
Less Accumulated Depreciation
$ ,398,000.00
$ ,564,000.00
$ ,743,000.00
$ ,938,000
Net fixed assets
$ ,172,000.00
$ ,244,000.00
$ ,350,000
Other Assets
$ ,000.00
$ ,000.00
$ ,000.00
$ ,000
Total Assets
$ ,029,000.00
$ ,155,000.00
$ ,730,000.00
$ ,645,000
 Liabilities
Accounts Payable
$ ,849,000.00
$ ,717,000.00
$ ,755,000.00
$ ,664,000
Notes Payable - bank
$ ,176,000.00
$ ,727,000.00
$ ,041,000.00
$ ,650,000
Income tax payable $
Current installment - long-term debt
$ ,000.00
$ ,060,000.00
$ ,000.00
$ ,000
Total current liability
$ ,005,000.00
$ ,504,000.00
$ ,003,000.00
$ ,503,000
Long Term Debt
Term Loan
Total Liability
 Stockholder's Equity
Common Stock
$ ,249,000.00
$ ,249,000
Additional capital
$ ,000.00
$ ,000
Retained Earnings
$ (330,000.00)
$ ,297,000.00
$ ,373,000.00
$ ,788,000
Total stockholder's Equity
$ ,024,000.00
$ ,651,000.00
$ ,142,000

21. Collateral 6/30/86 - Q1 9/30/86 - Q2 12/31/86 - Q3
6/30/86 - Q1
9/30/86 - Q2
12/31/86 - Q3
3/31/87 - Q4 Year end
Cash Flow Analysis
Starting Cash Balance
At least $100,000
156,000
100,000
Cash In
Receipts
1,487,000
1,764,000
4,572,000
3,800,000
Cash Out
Operating Expenses
1,928,000
2,967,000
2,698,000
2,022,000
Interest
67,000
110,000
168,000
86,000
Capital expenditures
177,000
238,000
179,000
301,000
Total cash out
2,172,000
3,315,000
3,886,000
2,409,000
Net cash available
(529,000)
(1,451,000)
786,000
1,491,000
End of month minimum cash balance
Loan required to reach minimum cash balance
(629,000)
(1,551,000)
686,000
1,391,000
Cash available to payoff loan balance
Loan balance
Starting balance = $1,547,000
(2,176,000)
(3,727,000)
(3,041,000)
(1,650,000)
Collateral
80% of receivables
406,000
3,664,000
3,791,000
1,393,000
70% of Inventory
1,966,000
1,183,000
816,000
1,308,000
Total collateral
2,372,000
4,847,000
4,607,000
2,701,000

23. Desired ending inventory FORMULA3 Current month's unit sales FORMULA4
Answer Section
Sales Budget
June
July
August
Units
FORMULA1
Dollars
FORMULA2
Unit Purchases Budget
Desired ending inventory
FORMULA3
Current month's unit sales
FORMULA4
Total units needed
FORMULA5
Beginning inventory
FORMULA6
Purchases (units)
FORMULA7
Purchases (dollars)
FORMULA8 $0
Cash Budget
Cash balance, beginning
$8,000
Cash receipts:
Collections from customers:
From April sales
FORMULA9
From May sales
FORMULA10
FORMULA11
From June sales
FORMULA12
From July sales
From August sales
Total cash available
Cash disbursements:
Merchandise
FORMULA13
Variable expenses
FORMULA14
Fixed expenses
FORMULA15
Interest paid
Total disbursements
Cash balance before financing
Less: Desired ending balance
Excess (deficit) of cash over needs
Financing
Borrowing
Repayment
Total effects of financing
Cash balance, ending

25. Final Assessment

26. Resources Hanson Ski Products - Harvard Case Study
Case: Teaching notes:
Excel for Managerial Accounting
Gaylord Smith
ISBN:
Management Accounting A Road of Discovery
James Mackey & Michael Thomas
ISBN:
Managerial Accounting
Bill Lee
ISBN:
All curriculum materials except Harvard case study
Consortium Conference web site