A pro forma cash receipt is a document narrating incoming payments from debtors or receivables and is issued by the business or creditor (Cash Receipts Function, 2011). Function of Cash Receipts Cash receipts give a quick snapshot of particular debtors and respective repayments, thus, helping the business to recognize the source of cash inflows with respect to receivables within the accounted date range (LexisNexis, 2013). I 2. Company’s Cheque to Supplier Next you are to prepare a company cheque to pay a supplier called Shakers Ltd the amount of an invoice that has a gross total of £3,250.00. You are paying the invoice within the credit terms and are entitled to a cash discount of 2%.
CASE STUDY 3—Cash Budget Template Pape Ndiaye SCHEDULE OF EXPECTED CASH COLLECTIONS FROM CUSTOMERS Credit Sales May June April 65,800 May 26,850 62,650 June 22,500 Total Cash Collections 92,650 85,150 SCHEDULE FOR EXPECTED PAYMENTS FOR PURCHASE OF INVENTORY Inventory purchases May June April 117,000 May 54,000 81,000 June 25,200 Total Payments for Inventory Purchases 171,000 106,200 LBJ Company Cash Budget For the Two Months of May and June May June Cash balance $20,000 $20,000 Add: Receipts Collections from customers 92,650 85,150 Sale of plant assets 33,000 Sale of new common stock 50,000 Cash sales 75,000 57,000 Total receipts 200,650 192,150 Total Available Cash 220,650 212,150 Less: Disbursements 220,650 212,150 Purchases of inventory 171,000 106,200 Operating expenses 15,000 15,000 Selling and administrative expenses 10,150 10,150 Equipment purchase 35,000 Dividends 20,000 Total disbursements 231,150 151,350 Excess (deficiency of available cash over disbursements) (10,500) 60,800 Financing Borrowings 30,500 Repayments (31,008.33) Ending cash balance $20,000 29, Please answer the three qualitative questions on the next tab called Qualitative Questions. 1) What are the three sections of a cash budget, and what is included in each section? Cash budget is the budget for expected cash inflows and outflows during the specific period of time. Cash budget consists of four sections: receipts, disbursements, cash surplus or deficit, and financing section. The receipts section lists the beginning cash balance, cash collections from customers, and other receipts.
The accrual method works best for these businesses because revenues and expenses can be balanced at the end of every reporting period. They simply need to refer back to the account when cash is paid and make an adjustment entry. The accrual method is most notable for its accuracy in reporting transactions. Accountants must adhere to what is known as the generally accepted accounting principles or GAAP. The accrual method is GAAP compliant because it follows the revenue recognition principle which states that each financial transaction must be reported in the accounting period in which it occurs.
A company sells $10,000 of green widgets to a customer in March, which pays the invoice in April. Under the cash basis, the seller recognizes the sale in April, when the cash is received. Under the accrual basis, the seller recognizes the sale in March, when it issues the invoice. Expense recognition. A company buys $500 of office supplies in May, which it pays for in June.
SCF-Direct and Indirect Methods SCF-Direct and Indirect Methods A company may use a direct or indirect method to record cash flow and convert net income from accrual to a cash. The Financial Accounting Board allows both presentation methods of cash flows since both are appropriate depending on the company, both methods arrive to the same total amount. The main difference between direct and indirect methods is the way each method arrives to the amount and how it breaks down operating activities. The direct method of cash flow includes more details on operating activities; this method is also used to settle net income and cash from operating expenses. I believe the direct method is a better way for a business to keep track of cash flow because it accounts for every operating activity.
It helps for forecasting on making certain financial decisions. The three groups that use these ratios are managers, potential investors or lenders, and stockholders. The reason the managers use these ratios, is to have a closer look and be able to identify situations that need their instant attention with in the firm. Potential investors are lenders used a ratio to determine if they should invest in the company or not. As for stockholders they mainly use this information for forecasting dividends, earnings on the free cash flow.
Accrual and Cash Basis Accounting Commercial accounting and generally accepted accounting principles, generally prescribe the accrual basis of accounting over the cash basis. Describe both bases of accounting and explain the differences. Cash basis is used mostly by small businesses where owners and creditors want a simple way to understand the financial statements. Cash basis is used when a company or creditors does not worry about the accuracy of the statements but just want to understand if there is profit or loss in the company. Revenues are recorded when cash is received and expenses are recorded when cash is payment.
Accrual Basis vs. Cash Basis Accounting ACC 290 Accrual Basis vs. Cash Basis Accounting Cash basis and accrual basis accounting are two principle accounting methods used for keeping track of the income and expenses related to a business. When using the cash basis method, the income is not recorded until actual cash or payment is received and expenses are also not recorded until they are actually paid for. On the other hand when using the accrual basis method, transactions are recorded as soon as the order is made or services rendered, regardless if payment is actually received at the time. The main difference between these two methods is the timing in which the transactions are debited and credited to accounts (Kimmel, Weygandt, & Kieso, 2009). There are certain criteria to consider when deciding which method of accounting should be used for a business.
The two main method of recording accounting transaction are cash basis and accrual basis accounting. Cash basis and accrual basis have their advantages and disadvantages, but only one method is approved by Generally Accepted Accounting Principles (GAAP).The difference between accrual and cash basis accounting has to do with the time frame in which revenues and expenses are recorded and reported. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. The accrual basis allows the business to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). Accrual basis on accounting is the method of accounting that most business and professionals are required to use by law because of its matching principles.
d. ___O_____ Purchased $8,800 of merchandise for cash. e. ___F_____ Received $100,000 from the issuance of common stock. f. ___F/O_____ Paid $1,200 of interest on a note payable. – When using the indirect method we add this back to the Net Income. g. ___I_____ Acquired a new laser printer by paying $650.