Cash Budgeting

If the cash balance before financing is less than the minimum cash balance, the pharmacy will need to what?

borrow enough cash to raise to the min

What is the Net monthly cash gain or (loss) equation?

cash receipts - cash payments

What is the usual cash budget budget period?

normally 6-12 months

For a cash budget, payments other than those made every month must be estimated which includes what?

payments for purchase or fixed assets, loan payments, or income taxes

If the gash balance is greater than the min, the pharmacy may be able to what?

repay past borrowing or to invest

Financing is compared with what?

the pharmacy's minimum cash balance

In calculating monthly purchase payments, the manager must determine what?

the timing of purchase, payment, & sale of merchandise

For Cash Payments, how are variable costs estimated?

variable costs are estimated as a percentage of sales

Cash budget shows what?

when to borrow, repay, invest

Why is cash budget needed?

1.) Cash in and out not equal to revenues and expenses 2.) Revenue recognized in time period that good is delivered or service rendered; cash-in recognized when cash received 3.) Expense recognized in time period that good is used; cash-out recognized when cash is paid out

Why is the cash flow is erratic?

1.) Seasonal sales 2.) purchases precede sales 3.) credit sales and purchases 4.) Purchases of fixed assets

What are the steps of making a Cash Budget?

1.) Select the budget period 2.) Forecast monthly sales 3.) Estimate cash and credit proportions

Why Make A Cash Budget from the perspective of control?

1.) each month compare budget and actual 2.) take action if necessary 3.) Like performance report in budgeting exercise

Why Make A Cash Budget from the perspective of planning?

1.) flexibility 2.) better interest rates 3.) peace of mind

Financing is added to (____________) or subtracted from (____________) the beginning monthly cash balance to yield the cash balance, end of month, before financing

1.) if a gain 2.) if a loss

What are Cash Payments?

A major part of monthly payments consists of purchases of merchandise for resale

Define Cash Budget.

A weekly or monthly forecast of cash inflows & outflows

What should be included in the Cash Receipts?

Any other income the pharmacy has, such as interest on savings accounts or other investments, should be included

Describe the cash flow in a cash budget.

Cash flow is usually erratic

What is Financing?

Comparing monthly receipts & payments yields the monthly cash gain or loss

What do Cash Receipts consist of?

Consist of cash sales for the month plus collections of accounts receivable from credit sales made in the prior months

What does the Cash Budget estimate?

Estimates, for each week or month, how much cash will come into the pharmacy & how much will be paid out

For Cash Payments, how are fixed costs estimated?

Fixed costs are estimated as a set dollar amount per month

Describe how the Monthly Sales Forecast is made.

If the pharmacy offers credit, the manager must also estimate the percent of monthly sales that will be made on credit & the percent that will be made for cash

What is the most important part of cash budget & most difficult step?

Monthly Sales Forecast

What is the Purchase payments equation?

Sales x COGS%

What is the problem with shorter Budget Period?

Shorter periods don't take into account seasonal shifts in cash flow & it's difficult to develop reliable estimates of sales for longer periods

What is the Minimum Cash Balance?

The minimum amount of cash the pharmacy needs in its cash account

What is the budget period?

The period of time the budget will cover

For the Cash Receipts, to determine monthly credit collections, the manager must what?

To determine monthly credit collections, the manager must estimate the lag time between credit sales & payments