Chapter 9: Cash Flow and Filing Taxes Flashcards
What is a Cash Flow Statement?
A financial report that shows the money coming in and going out of a business at a given time
What are the five rules to keep cash going?
- Collect Cash asap
- Pay your bills by the due date, not before
- Check available cash daily
- Lease/ finance (borrow money) instead of buying equipment where practical.
- Avoid buying inventory you do not need.
What are Non-Cash Expenses
Adjustments to asset values not involving cash. (e.g. depreciation)
What is the Cash Flow Formula?
[Cash in hand + Cash Receipts] -
Cash Disbursements
List and define each segment of the Cash Flow Statement.
- Operating- Involves the money used to run the business from day-to-day
- Investment- Money going into equity and out of the investments in the business, such as equipment, vehicles etc.
- Financing- Debt used to finance the business
What are the two steps of forecasting cash flow?
- Project cash receipts from all possible sources (orders not = cash receipts)
- Subtract expenditures that would need to be deducted to meet this level of cash receipts
What are three risks associated with managing inventory?
- Customers may not buy enough to give profit, or none at all
- Storage costs
- Pilferage of inventory (theft)
State two reasons for tracking inventory
- Keeping accurate records helps you know what you have on hand
- Keeping timely and accurate records is vital to controlling inventory costs
What do tight inventory controls help to reduce?
- Waste
- Obsolescence
- Spoilage
Note for Accounts receivables and cash
It affects money, so there is a need for invoicing and collecting monies owed.
What is the Aging Schedule for accounts receivable?
This shows the list of accounts receivable ordered by their payment due date.
How to Maintain balance with accounts receivables?
- Establish clear credit arrangements with customers with terms acceptable to both of you.
- Create comprehensive written credit and collect policies, share them with the team and implement them.
- Use collection techniques appropriate to the level of delinquency.
Note when dealing with Accounts Receivables
- Avoid using salespeople as collectors on their assigned clients.
- Some customers are worth “firing” as credit clientelle.
What is credit, and what does it allow you to do?
This is the ability to borrow money.
It allows you to buy something without spending cash at the time of purchase.
The leverage you have to negotiate depends on…
The balance of power in the relationship between yourself and the supplier
How can you time your accounts payables?
Using an ageing schedule will help to make your cash requirements clear.
What does an ageing schedule for a/c payables show you?
- What is coming due
- Where you can benefit from discounts
- Where there are problems
What does capital budgeting have to do with cash flow?
The purchasing of equipment, machinery etc. requires an initial cash outflow and incremental capital for new projects.
Burn Rate
The pace at which a company must invest before getting positive returns.
(How long a company can spend money before running out)
Burn Rate Formula
[Cash Available + Revenue] / -ve Cash Outflow per month
=# of months before cash runs out
Filing Tax Returns
Corporate, Partnership, Individual and self-employment taxes must be paid to the govt. of JA (mailed/submitted online) at certain times every year.
Things to consider regarding taxation
- Accurate record-keeping throughout the year makes tax preparation easier.
- Mistakes on the tax returns may cause the govt. to audit you, (they can choose you at random as well)
