INTRODUCTION

Cash is the important current asset for the operation of the business.Cash is a medium of
exchange to purchase the goods and services and todischarge the liabilities. Cash is the basic
input needed to keep the business running on a continuous basis; it is also the ultimate
outputexpected to be realized by selling the service or product manufactured bythe firm. The
firm should keep sufficient cash, neither more nor less.Cash shortage will disrupt the firm’s
manufacturing operations whileexcessive cash will simply remain idle, without contributing
anythingtowards the firm’s profitability. Thus a major function of the financialmanager is to
maintain a sound cash position.Cash is the money which a firm can disburse immediately
withoutany restriction. The term cash includes coins, currency and cheques held by the firm,
and balances in its bank accounts. Sometimes near cashterms, such as marketable securities or
bank time deposits, are alsoincluded in cash. The basic characteristic of near cash asset is that
theycan readily be converted into cash. Generally, when a firm has excess

cash, it invests it in marketable securities. This kind of investmentcontributes some profit to the
firm.

CASH FLOW MANAGEMENT

Cash flow management is a process of monitoring, analyzing, andadjusting one’s business cash
flows. The most important aspect of cashflow management is avoiding extended cash
shortages, caused by havingtoo great a gap between cash inflows and outflows. Therefore,
oneneeds to perform acash flow analysison a regular basis, and use cashflow forecasting so that
one can take the steps necessary to head off cashflow problems.Cash management involves the
efficient collection, disbursement andtemporary investment of cash. The treasurer department
of a company isusually responsible for the firm’s cash management system. A cash budget,
instrumental in the process, tell us how much cash we likely tohave it, and for how long.In cash
flow management I studied many statements like asfollows:

Cash flow StatementCash Budget

CASH MANAGEMENT SYSTEM

With timely information reporting a firm can generate significantincome by properly managing
collections, disbursement cash balance andcash equivalents investment,

IMPORTANCE OF CASHMANAGEMENT
Cash management assumes more important than other current assets because cash is the
most significant and the least productive asset that afirm holds. It is significant because it is
used to pay the firms obligations.However cash is unproductive. Unlike fixed assets or
inventories, it doesnot produce goods for sale. Therefore, the aim of cash management is
tomaintain adequate control over cash position to keep the firm sufficientlyliquid and to
excess cash in some profitable way.Cash management is also important because it is difficult to
predictcash flow accurately, particularly the inflows and there is no perfectcoincidence
between the inflows or outflows of cash. During some periods, cash outflows will exceed cash
inflows, because payments for taxes, dividends, or seasonal inventory build up. At other times,
cashinflows will be more than cash payments because there will be large cashsales and debtors
may be realized in large sums promptly.

Cash management is significant because cash constitutes thesmallest portion of the total current
assets, yet management’sconsiderable time is devoted in managing it.

CASH MANAGEMENT STRATEGIES

The firm should develop appropriate strategies for cash management.The firm should evolve
strategies regarding the following four facets of cash management:
Cash planning
cash inflow and outflow should be planned to projectcash surplus or deficit for each period for
each period of the planning period. Cash budget should be prepared for this purpose.
Managing the cash flows
the flow of cash should be properly managed.The cash inflows should be accelerated while,
as far as possible, the cashoutflows should be decelerated.
Optimum cash level
the firms should decide about the appropriatelevel of cash balances. The cost of excess cash and
danger of cash
deficiency should be matched to determine the optimum level of cash balances.
Investing surplus cash
the surplus cash balances should be properlyinvested to earn profits. The firm should decide
about the division of suchcash balance between short-term investment opportunities such as
bank deposits, marketable securities, or inter- corporate lending.
CASH OUTFLOW
For cash management, the control of cash outflows, which isdirectly related to organizational
arrangements for budget execution, can pose more difficulties than the control of cash inflows.
However, issuesrelated to cash management should not be confused with issues related tothe
distribution of responsibilities for accounting control andadministration of the payment system.
The major purpose of controllingcash outflows is to ensure that there will be enough cash until
the date payments are due and to minimize the costs of transactions, whilekeeping cash outflows
compatible with cash inflows and fiscalconstraints. The first condition for ensuring that cash
outflows fit fiscalconstraints is good budget preparation and budget implementationcovering
both cash and obligations. However, during budgetimplementation, cash outflows must also be
regulated through cash plansto smooth cash outflows.
CASH INFLOW
It is necessary to minimize the interval between the time when cashis received and the time it is
available for carrying out expenditure programs. Collected revenues need to be processed
promptly and madeavailable for use. When tax collection is done by the tax administrationoffices
(or by Treasury offices) the administrative organization of theseoffices may have to be reviewed
and their equipment modernized.Commercial banks by virtue of the banking sector infrastructure
are oftenable to collect revenues more efficiently than tax offices, which shouldtherefore focus
instead on tracking taxpayers. When revenues arecollected by commercial banks, arrangements
must be defined to foster competition and ensure prompt transfer of collected revenues
togovernment accounts. Systems of bank remuneration through float,which consists of
authorizing the banks to keep the revenues collected for a few days, present inconveniences.
Stringent rules to ensure prompttransfers must be established. Moreover, bank remuneration
through fees
is more transparent and promotes competitive bidding. An appropriatesystem of penalties for
taxpayers is also an important element in avoidingdelays in revenue collection.
CASHFLOWSTATEMENT
Meaning:IT IS a summary of firm’s cash receipts and cash payments duringperiod of time
.The purpose of cash flow statement is to report a firm’s cashinflow and outflows, during a
period of time, segregated in to threecategories:
operating, investing and financing activities.

The statement of cash flow explains changes in cash and cashequivalent such as treasure bill and
the activities that increase anddecrease cash. The cash flow statement may be presented using
either a“direct method” (Which is encouraged by financial accounting standards board) or an
“Indirect Method” (which is likely to be the methodfollowed by good majority of firms).
The only difference between thedirect and indirect method of presentation concern the reporting
of operating activities; the investing and financing activities section would

be identical under either method. Under the direct method, operating cashflow reported
directly by major classes of operating cash receipts (fromcustomers) and payment (to suppliers
and employees). A separate indirectreconciliation of Net income to net cash flow from
operating activitiesmust be provided. The reconciliation starts with reported net income
andadjusts this figure for non-cash income statement items and relatedchanges in balance
sheet items to determine cash provides by operatingactivities.Cash flow statement has three
activities like as follow:

Operating Activities

:- Shows impact of transactions not defined asinvestigation or financing activities. These cash
flows are generally thecash effects or transaction that enter into the determination of net
income.Thus, we see items that not all statement users might think of as‘operating’ flows-items
such as dividends and interest received, as well asinterest paid.

Investing Activities
:- Shows impact of buying and selling fixed assetsor equity securities of other entities.

Financing Activities

:- Shows impact of all cash transactions withshareholders and the borrowing and repaying
transactions with lenders.

44

IMPORTANCE

The effects of cash and non-cash investing and financingtransaction.

A manager can assess the reason for differences between netincome and net cash flow from
operating activities.

It is also helpful for a company to generate future net cash inflowsfrom operations to pay
debts, interest and dividends.

It gives indication to a company’s need for external financing.

A cash flow statement is straightforward and easy toUnderstand.

It gives a strong indication of how viable the company will be over time.
The extent of success or failure of cash planning can be known bycomparing the actual cash
statement with the budgeted cash flowstatement and remedial measures can be taken.

It discloses the volume and the speed at which cash flows indifferent segments of the business

DAILY CASH FLOW REPORT

The Daily Cash Flow report is prepared with an objective to keepincessant check on the cash
flows of the firm, which includes both inflowand outflow cash. The cash flows are planned to
project cash surplus or deficit for each period i.e daily, monthly, quarterly, semi-annual &
annual basis. The framework of report highlights all the effects, which lead tocash surplus or
deficit. It is a measure, which calculates the details of daily transaction in terms of sale and
purchase, which further includes themeans through which they take place.At Escorts-AMG, the
daily cash flow report is designed in a formatsuiting their requirements .The sales of tractors is
their primary goalwhich includes exports as well. The bills are presented for desiredcollection
from various channels i.e dealers, stockiest, distributorsthrough which the tractors are supplied
in the market. Besides tractors