Escolar Documentos
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Cultura Documentos
Introduction
Meaning and Nature
Motives for Holding Cash
Objectives of Cash Management
Factors Determining Cash Needs
Advantages of Adequate Cash
Issues in Cash Management
Avoiding Cash Deficit or Cash Insolvency
Utilization of Surplus or Excess Cash
Cash Management
Marketable Securities and its Types
Cost of Being Short Cash
Functions of Cash Management
Cash Management Models
Cash Forecasts Types and Methods
Factors Determining Cash Budgets
Steps and Uses of Cash Budget
Cash Flow Statement Analysis
Fund Flow Statement Analysis
Introduction
Cash performs vital role in the business. Cash is
termed as basic component to satisfy not only day to
day requirements of business but also making payments
to creditors. That is why maintaining adequate cash
balance is important task in cash management. This
chapter focuses on different aspects as well as
techniques for maintaining essential cash balances. The
same are as below;
Introduction
1. Meaning and nature of cash
2. Issues of cash management
3. Motives for holding cash
4. Cash planning
5. Factors determining cash needs
6. Cash Management Models
(a) Baumol Model
(b) Miller-Orr Model
7. Tools of Cash Planning
(a) Cash Budget
(b) Cash Flow from Operation
(c) Cash Inflow and Outflow Statements
(d) Statement of Working Capital Forecast
Meaning and Nature
Types
of
Securities Global
Treasury
Depository
Securities
Receipt
Banker’s Commercial
Acceptance Paper
Cost of Being Short Cash
The term short cost refers to, cost associated with a
shortage of cash in the firm’s cash requirements. Such
cost may be incurred in any of the following form ;
Additional Information:
1] Sales : 10% realized in the month of sales; balance realized equally in two subsequent months.
2] Purchases : There are paid in the month following the month of supply.
3] Wages : 10% paid in arrears following month.
4] Rent : Rs.5,000 per month paid Quarterly in advance due in April.
5] Miscellaneous expenses : Paid a month in arrears.
6] Income Tax : First installment of advance tax Rs.1,50,000 due on or before 15th June.
7] Income from Investment : Rs.30,000 received quarterly in April, July etc.
8] Cash in hand : Rs.30,000 on 1st April.
Solution: Cash Budget for the month of April, May and June
Particulars April Rs. May Rs. June Rs.
Opening Balance of Cash 30,000 75,500 7,000
Add: Cash Receipts :
Cash Sales 40,000 58,000 44,000
Receipts from Debtors (Credit Sales):
Collection in 1st month 2,92,500 1,80,000 1,98,000
Collection in 2nd month 2,70,000 2,92,500 1,80,000
Income From Investment 30,000 - -
Total Cash Receipts : [1] 6,62,500 6,06,000 4,29,000
Less : Cash Payments :
Creditors for Purchases 5,00,000 5,20,000 5,30,000
Wages : Current (90%) 36,000 45,000 36,000
Arrears (10%) 6,000 4,000 5,000
Rent 5,000 - -
Miscellaneous Expenses 40,000 30,000 60,000
Income Tax - - 15,000
Total Payments : [2] 5,87,000 5,99,000 7,81,000
Closing Balance of Cash 75,500 7,000 (-) 3,52,000
Working Notes:
1] Out of total Sales, 10% are cash sales. Balance 90% are credit sales. In any
given month 50% of credit sale of the previous two months are collected.
2] In any given month, 90% of the wages of the same month and 10% of
previous months wages are paid.
Particulars Feb. March April May June
Rs. Rs. Rs. Rs. Rs.
Total Sales 6,00,000 6,50,000 4,00,000 5,80,000 4,40,000
Less: Cash (10%) 60,000 65,000 40,000 58,000 44,000
5,40,000 5,85,000 3,60,000 5,22,000 3,96,000
Collection in 1st
Month after Credit --------- 2,70,000 2,92,500 1,80,000 1,98,000
Sales
Collection in 2nd
Month after Credit ---------- ----------- 2,70,000 2,92,500 1,80,000
Sales
Total Credit 5,62,000 4,72,500 3,78,000
Cash Flow Statement Analysis
The word fund is used in a narrow sense refers to
cash. When cash is used as ‘fund’ the analysis relates to
movement of cash. Cash flows refers to actual movement
of cash into and out of an enterprises. When cash flows
into organisation, it called ‘inflow of cash’, similarly when
cash goes out of business its called ‘outflow of cash’. The
cash flow statement depicting movement of cash position
from one period to another.
Uses and Limitations of Cash Flow Statement
The uses of Cash Flow Statement are as below;
(a) It is useful to management to prepare dividend policies
(b) It guides management to evaluate the changes in cash
(c) It helps to know, how movement of cash took place
(d) It shows the details about sources and application of
cash