Cash Flows What is a cash flow summary

Cash Flows

What is a cash flow summary and a cash flow projection? A cash flow summary is the actual result of money transactions during the year. A cash flow summary contains the financial history of a business over a period of time, usually 1 year. l A cash flow projection deals with the future plan of all money transactions for a specific time period, usually 1 year. Generally the cash flow is conducted on a monthly basis. l

What are the advantages of a cash flow projection? l l l l It shows the operator when excess cash will be available, and when cash deficits will occur. It provides for budgeted loans that are borrowed only for the periods through which they are required. It provides a technique for combining personal and farm or ranch financial needs for the next period. It lets you plan purchases It allows comparison of the cash flow projection with the cash flow summary to record actual performance against the advanced planning. It helps you evaluate the relationship of you short term debt to your repayment capacity It lets the manager immediately see the cash position.

What are the disadvantages of a cash flow projection? l l l Collection of data takes time. Projected prices are difficult to estimate. Borrowing rates may fluctuate. Family and business consumption of resources may vary. Inventories constantly change. The entire cash flow projection plan needs constant review and revision.

Compile a cash flow from the financial data in the financial scenario. l Complete the cash flow work sheet

Analyzing the cash flow worksheet. l What is the maximum amount they will have to borrow in any one month?

$17, 286 (April)

l What are the projected total operating receipts for the year 2005?

$579, 698

l What are the total cash outflows projected for the year 2005?

$645, 026

l What are the total cash inflows projected for the year 2005?

$625, 298

l What is the projected operating loan balance on December 31, 2005?

0

l In what month do they have they greatest positive cash difference?

December ($95, 544)

l What was the beginning of the year operating loan balance?

0

l In what month does the Tucker’s farm business have the most negative cash position?

April ($-15, 286)

l What is the largest projected operating expense item?

Labor Hired ($152, 325)

l How much principal does the Tucker’s farm business plan to pay on all operating loans during the year?

$27, 361