Tag: Cash

  • Best Fast Business Loan for Quick Cash

    Best Fast Business Loan for Quick Cash

    Discover the best fast business loan for quick cash. Learn about types, advantages, disadvantages, and tips for finding the right loan to meet your business needs efficiently.

    Best Fast Business Loan for Quick Cash: Get your needs

    In today’s fast-paced business environment, having access to quick capital can be the difference between seizing an opportunity and missing out entirely. These loans have become increasingly popular among entrepreneurs and small business owners looking for immediate financial support. Whether it’s for unexpected expenses, inventory purchases, or smoothing out cash flow, knowing where and how to secure a fast business loan is essential. This article explores various options for fast business loans, key considerations, and tips for finding the best fit for your needs.

    Understanding Fast Business Loans

    These loans are financial products designed to provide quick access to capital, usually with a streamlined application process and less stringent requirements compared to traditional bank loans. These loans can be secured from various sources, including banks, credit unions, online lenders, and alternative financial institutions. The distinguishing characteristic of fast business loans is their rapid approval and funding times, often within a day or two.

    Advantages of Fast Business Loans

    • Quick Access to Funds: One of the primary benefits is the speed with which you can access funds, often within 24 to 48 hours.
    • Minimal Documentation: Many lenders require less paperwork than traditional loans, making it easier and faster to apply.
    • Flexible Uses: Funds can generally be used for various purposes, from covering operational expenses to expanding your business.

    Disadvantages of Fast Business Loans

    • Higher Interest Rates: Due to the quick access to funds, interest rates may be significantly higher than traditional loans.
    • Shorter Repayment Terms: Many fast loans come with shorter repayment periods, which can put pressure on cash flow.
    • Potential for Debt Cycle: Without careful planning, business owners risk entering a cycle of debt if they frequently rely on fast loans.

    Key Types of Fast Business Loans

    There are several types of fast business loans available, each catering to different business needs. Below is a table summarizing the most common options:

    Loan TypeSpeed of AccessInterest RatesTypical Term LengthBest For
    Short-Term Loans1-3 Days7% – 30%3-18 MonthsUrgent cash needs
    Merchant Cash AdvancesAs Soon as 24 Hours20% – 50%FlexibleRetail businesses with daily sales
    Business Lines of Credit1-3 Days5% – 25%RevolvingOngoing expenses, inventory buying
    Invoice Financing24-48 Hours1% – 5% per month30-90 DaysWeak cash flow to cover expenses
    Peer-to-Peer LendingDays to Weeks6% – 36%VariesLarger financing needs

    Factors to Consider When Choosing a Fast Business Loan

    When choosing a fast loan, various factors must be considered to ensure you select the right option for your unique circumstances:

    1. Purpose of the Loan: Clearly define what you need the funds for (e.g., inventory, payroll, or unexpected expenses).
    2. Total Cost of Borrowing: Look beyond interest rates; consider fees such as origination fees or prepayment penalties.
    3. Repayment Terms: Check for repayment flexibility, especially if your financial situation is unstable.
    4. Lender Credibility: Research the lender’s reputation, customer service reviews, and regulatory compliance.
    5. Funding Speed: Ensure the loan aligns with your timeline; some loans may promise fast access, but experience delays.

    Tips for Securing the Best Fast Business Loan

    To increase your chances of obtaining the best fast business loan for your needs, consider the following tips:

    • Prepare Financial Statements: Having up-to-date financial documents, including profit and loss statements, can expedite the approval process.
    • Maintain Personal Credit: Many lenders will also consider your credit score, particularly for smaller loan amounts. Aim to keep your score above 650.
    • Shop Around: Different lenders offer various terms and rates. It’s essential to compare options to find the best deal.
    • Understand Your Cash Flow: Ensure you have a clear understanding of your cash flow to select a loan that won’t overburden your finances.
    • Consult a Financial Advisor: If you’re unsure, consult with a financial advisor or a lending expert to navigate your options.

    Quick Checklist for Fast Business Loan Application

    To streamline the process, follow this quick checklist before applying for a fast business loan:

    •  Define your borrowing needs clearly.
    •  Gather necessary financial documents.
    •  Review your credit score and take steps to improve it if necessary.
    •  Research lenders and compare rates, terms, and reviews.
    •  Organize a repayment plan that aligns with your cash flow.

    Conclusion

    They can provide critical support for businesses that need immediate cash flow to seize opportunities or address financial pressures. By understanding the types of loans available, evaluating their advantages and disadvantages, and considering essential factors in your decision-making process, you can make an informed choice that aligns with your business needs.

    As always, exercise caution and do not borrow more than you can afford to repay. With the right approach, they can serve as a practical tool for growth, stability, and success for your enterprise. Whether you’re just starting or managing an established business, having access to quick cash can propel you toward achieving your goals.

    FAQs

    1. What are fast business loans?

    These loans are financial products that provide quick access to capital, usually with a streamlined application process and fewer requirements compared to traditional loans.

    2. How quickly can I receive funds from a fast business loan?

    Depending on the type of loan and lender, you can often receive funds within 24 to 48 hours, with some options like merchant cash advances offering access as soon as 24 hours.

    3. What are the typical interest rates for fast business loans?

    Interest rates for loans can vary widely, typically ranging from 5% to 50%, depending on the type of loan and the lender.

    4. Can I use fast business loans for any purpose?

    Yes, funds from loans can generally be used for various purposes, including covering operational expenses, purchasing inventory, or addressing unexpected costs.

    5. What should I consider before applying for a fast business loan?

    You should evaluate the purpose of the loan, total cost of borrowing (including fees), repayment terms, lender credibility, and funding speed.

    6. How can I improve my chances of getting approved for a fast business loan?

    Prepare up-to-date financial statements, maintain a good personal credit score, shop around for the best rates, understand your cash flow, and consult with a financial advisor if needed.

    7. Are there any risks associated with fast business loans?

    Yes, risks include higher interest rates, the potential for debt cycles if loans are frequently relied upon, and shorter repayment terms which may strain cash flow.

    8. What types of fast business loans are available?

    Common types include short-term loans, merchant cash advances, business lines of credit, invoice financing, and peer-to-peer lending.

    9. How can I ensure I choose the right fast business loan?

    Conduct thorough research on different lenders, compare terms and rates, clearly define your borrowing needs, and choose a loan that aligns with your financial situation.

    10. Can I apply for a fast business loan with bad credit?

    While having good credit scores can improve your chances of approval, some lenders offer loans to individuals with bad credit, though they may come with higher interest rates and stricter terms.

  • Operating cash flow its type and importance

    Operating cash flow its type and importance

    Operating cash flow (OCF) is the cash a business generates through routine operating activities, such as service delivery, marketing, hiring, and payroll, over a specified period. OFC represents a company’s ability to make money in the short and long term. Focusing on operating cash flow metrics helps businesses understand whether they can continue to grow and expand their business. OCF is also important for assessing overall organizational performance and financial health.

    Here are the articles to explain, What is operating cash flow? type and importance

    For any business to generate income, it must maintain a positive operating cash flow daily as it is directly related to net income. Cash flow management software helps companies and accounting teams manage money coming in and going out. It can also forecast future cash flows using historical financial data as a reference point.

    Type of cash flow

    Cash flow measures how much money is moving in and out of a company. A business considers valuable when it can generate positive cash flow or have more inflows than outflows.

    • Operating Cash Flow: Cash collected from regular business operations, including sales of goods, rent, wages, overhead, etc.
    • Investing cash flows: The funds used to purchase capital assets and securities such as stocks, bonds, and related holdings are investing cash flows. Cash flow into the company comes primarily from interest and dividends paid on these holdings.
    • Financing cash flows: Cash generated from the capital, external investments, and loans are financing cash flows. It also includes amounts recovered from debt and equity and additional corporate payments.
    • Free Cash Flow (FCF): The money left over after a business pays its operating expenses (such as salaries and taxes) is called free cash flow. Companies can spend their FCF however they want. Operating free cash flow often provides great insight for investors when reviewing business plans and making investment decisions based on the company’s financial efficiency.

    The importance of operating cash flow

    OCF is a major component of any financial analysis as it demonstrates the sustainability and financial stability of a business. Since operating cash flow takes into account day-to-day activities, it is necessary to determine whether current transactions are profitable.

    OCF is an integral part of a company’s earnings assessment. It focuses on cash items that can help determine whether a business will need outside funding or investment shortly.

    If an organization generates significant operating cash flow but reports a lower net income value, this implies an increase in the number of fixed assets and accelerated depreciation throughout the transaction.

    Operating cash flow is important for the following stakeholders to make sound business decisions:

    • Financial Analysts: OCF is interested in analysts because it indicates whether a company is financially stable and profitable.
    • Investors: OCF helps investors decide whether a business is worth their capital and offers them a good return on their investment.
    • Lenders: Financial institutions such as banks, loan unions, and credit unions evaluate OCF values ​​to determine an organization’s creditworthiness and financial responsibility for lending.

    How to Present Operating Cash Flow

    They are usually the first part of the financial statements, reported under the statement of cash flows, and include investing and financing cash flows. There are two ways of describing operating cash flow.

    Indirect method:

    The indirect method first adjusts net income at the bottom of the income statement to the cash basis. Net income needs to adjust because most businesses report on an accrual basis, which means there are small financial gains over time.

    Non-cash items such as depreciation, amortization, accounts receivable (AR) and accounts payable (AP) add to arrive at the cash figure. When a company raises an AR increase, revenue generates but cash has not yet been received. In this case, the AR value must subtract from net income to understand the true cash impact on the business.

    Likewise, an increase in AP indicates that expenses incurred have not been repaid. This results in the AP amount being added to net income to determine the actual cash impact.

    Direct Method:

    The direct method expresses operating cash flow and starts by recording cash-based transactions and tracking them during the accounting period.

    When using the direct method to display the OCF value, the company still needs to separately perform the indirect method of operating cash flow to reconcile funds to obtain absolute cash figures.

    Items included when presenting OCF by the direct method:

    • employee salary
    • Vendors and Vendor Payments
    • cash collected from customers
    • Interest Income and Dividends
    • Income tax and related interest payments

    How to Calculate Operating Cash Flow

    Reading cash flow and income statements can be challenging without knowing how to calculate the different metrics. Financial analysts can measure how a business conducts cash-based transactions by calculating operating cash flow.

    While the simplest form of calculating OCF is Gross Revenue Operating Expenses, the formula may vary from business to business. Every organization has different non-cash items, changes in assets, and financial liabilities. Regardless of how OCF calculates, all items on the income statement and balance sheet must consider.

    Calculate the change in operating cash flow:

    • OCF = Net Income + Non-Cash Expenses – Increased Working Capital
    • OCF = Net Income + Depreciation + Stock-Based Compensation + Deferred Taxes + Other Non-Cash Items – Increased AR – Increased Inventory + Increased AP + Increased Accruals + Increased Deferred Revenue
    • The operating cash flow ratio is a measure of whether a company can use the cash it generates to pay its current liabilities. It helps in assessing the short-term liquidity of a business with a transparent view of the company’s total revenue.

    OCF Ratio = Operating Cash Flow / Current Liabilities

    Operating Cash Flow Example

    Let us take a simple example to better understand cash flow from operations. A small business collects $50,000 in cash from its customers. It spent $2,500 on marketing, skills training, and advertising. Assume its current office space depreciates by $1,000 in the same fiscal year, while taxes are $12,500.

    Net income = $50,000 – $2,500 – $1,000 – $12,500

    Net Income = $34,000

    OCF = Net Income + Depreciation

    OCF = $34,000 + $1,000

    So OCF – $35,000.

    Operating cash flow vs. net income vs. cash earnings per share

    • Several financial indicators help assess the economic performance of a business. But two common metrics that stand often confused with OCF are net income and cash earnings per share (cash earnings per share).
    • Operating cash flow takes into account the amount of cash generated from normal business activities. It is part of the cash flow statement and calculates on an accrual basis.
    • Net income is gross income from sales, including investments and excluding expenses. The main difference between OCF and net income is the way a company recognizes revenue over a certain period and matches expenses to that revenue.
    • Both OCF and net income may be higher or lower depending on the type of financial principle and when it measures.
    • Cash earnings per share is a measure of cash flow based on the number of shares outstanding. Cash EPS indicates operational stability and helps to compare business and financial trends in the market.
    What is operating cash flow type and importance Image
    What is operating cash flow? type and importance; Photo by Tima Miroshnichenko from Pexels.
  • Electronic Cash Meaning Definition Types Essay

    Electronic Cash Meaning Definition Types Essay

    Electronic cash stands mentioned as the digital savings of financial fees on a technical device representing a digital format of actual money. This transformation of the traditional paper-primarily based financial gadget considers being one of the milestone achievements of rapid technological tendencies.

    Here is the article to explain, How to define Electronic Cash with its Meaning, Definition, and Types?

    Certain powerful forces embodied with digital coins including greater privateness and safety decreased transaction, and coping with charges have allowed electronic coins to take over paper cash over the years. Despite the blessings related to digital cash, it will also have detrimental influences on positive financial factors which includes taxation and money laundering. Furthermore, the low penetration of electronic coins into the economy diagnoses to be one of the most important demanding situations digital coins will face beforehand destiny.

    Meaning and Definition of Electronic Cash;

    The World is shifting rapidly with massively converting technological trends and improvements. We are presently experiencing a technology, where everything is getting automatic and digitalized. Along with this technological transition, the global financial device is one large component that exists getting transferred from; its modern nation of a paper-primarily based economic gadget to a digital economic/coins gadget.

    According to the 1994 document of the European Central financial institution, electronic cash may define as an;

    “Electronic store of monetary value on a technical device that may widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument”.

    Like the serial number on fashionable greenback payments, electronic cash issued with the aid of a financial institution or another organization will even encompass a uniquely wide variety and could represent a distinctive cost of actual money. Hence with the cutting-edge accelerated section of changes and innovation, cash is becoming “digital”.

    This feel, it expresses as an;

    “Assemblage of ones and zeros which can display on millions of computer screens throughout the world can transferred at the speed of light and yet locate nowhere”.

    This study’s document will offer an evaluation of Electronic coins in the following methods. Section two will present a top-level view of the rise of electronic coins over conventional paper cash. Also, Section three will be difficult on the step-with the aid of-step method involved with the digital coins gadget.

    Section four will describe exclusive forms of digital coins; whilst phase five will provide examples of actual-international implementation of electronic coins. Furthermore, phase 6 will emphasize dangers and issues related to electronic coins; while segment 7 describes the demanding situations beforehand for digital cash.

    The development of electronic cash;

    In a financial system without a general medium of exchange, trades stood achieved based on distinctive methods. Whereas within the earliest length of human civilization humans exchanged several commodities they possess to buy the products they required. This turned into referred to as ‘commodity money’. Later on, commodity money was modified into ‘steel money’ in which people traded based on certain metals such as gold, silver, and copper. Thereafter with the progress in human civilization, ‘paper money became invented marking a milestone within the development of the economic machine.

    Even nowadays paper cash exists extensively used for transactions inside the economy. Nevertheless, economic offerings had been the early adopters of data technology, and the concept of electronic coins; which is likewise referred to as virtual cash became invented and delivered. As consistent with the monetary theories, if whatever is considered real cash, it wishes to fulfill three important capabilities. They are, it has to act as a medium of exchange, ought to have a unit of account, and need to have the potential to store cost. Therefore it changed into guaranteed that electronic currency can use as a general medium of alternate; because it fulfills all three criteria.

    Widely entry;

    Gradually electronic coins existed given widely unfolded at some point in the arena; because they embodied effective forces that contributed to their success as compared to present styles of cash. In evaluation with paper money, which uses the best physical security capabilities; digital cash use cryptography to authenticate transactions and protect the confidentiality and the integrity of facts. Whereas both the security and privacy of a transaction decide by way of digital coins. It has to also cite that banks currently incur big costs to address notes and coins. For example, within the USA alone, the clearing of cheques costs economic establishments $60 billion according to yr.

    The coping with the value of cash is an awful lot high. Hence in the digital world, those handling and transaction cost aim to lessen. Electronic coins stand considered a great accounting unit; as they can convert from one foreign money to every other, or convert into bonds or shares almost instantly. It takes up surely no room, it may count mechanically, and it in no way wears out, rusts, or tarnishes. Furthermore, digital coins advanced to paper money for remote transactions. While notes and cash need to carry in bullet-evidence vehicles manned by armed guards; digital coins may move without problems and quickly. Hence those residences have allowed digital cash to take over paper money and mark a dominating position in the monetary system.

    The process implemented electronic cash;

    The simple idea of Electronic coins implementation involves a minimum of 3 parties. They are issuers, no longer always monetary institutions, consumers as the quit-users who use the digital coins; and merchants who accept electronic coins as alternate for products or services provided. The steps involved in the procedure are as follows.

    • Consumer desires to open an account with a financial institution. The service provider who needs to participate in the digital coins transactions will open more than one bill with diverse banks to aid clients who use extraordinary banks.
    • When the client decides to purchase goods he or she will switch the digital coins from their account to his or her digital handbag. The digital coins can then transfer to the service provider. These transactions achieve through the net stand commonly encrypted.
    • Once the merchant obtained the digital cash payment, he’s going to then get it validated via the financial institution. The bank will then authenticate the digital cash transaction. Upon verification, the merchant will supply the goods to the patron. At the same time, the financial institution will debit the agreed amount from the client’s account and deposit the identical into the service provider’s account.

    Types of Electronic cash;

    Following the above technique of digital coins implementation, digital coins may categorize into two methods. In one way, electronic coins exist class-based totally on whether or not they could track or now not. Under this class, digital coins divide into “recognized digital cash” and “anonymous electronic cash”.

    Identified Electronic cash;

    Identified digital coins work greater much like a credit scorecard. From the first actual time, it’s far issued using a bank to one in all its clients, up to its final return to the bank may be without problems tracked through the financial institution. Consequently, it allows the financial institution to music the fee all through the financial system; subsequently the bank will keep every detail of who the authentic purchaser is, and how he has spent the cash.

    To make digital coins identifiable like this, digital coins carry a unique serial wide variety that generates by the financial institution itself. So that if the patron attempted to spend the equal cash greater than as soon as; it may be without difficulty stuck and averted. As in keeping with the graphical illustration shown in Figure; the steps worried with identified digital coins may index as follows.

    • The bank generates a serial number SR100, for digital cash worth $100.
    • The purchaser will purchase goods from a service provider, by using spending digital coins worth a dollar hundred and sending the corresponding digital file to the merchant.
    • The merchant will then cross return to the financial institution quit the digital coins and get real money in alternate.
    • At this point, the bank receives the digital cash with the serial number SR100 lower back. Therefore the bank is aware that the customer has spent the digital cash on a specific date to shop for a particular product from a specific service provider.
    Anonymous electronic cash;

    Anonymous electronic cash also called ‘blinded cash’ works like actual difficult cash. There isn’t any hint of ways the money became spent and there could be no trail of the transactions worried in this kind of electronic currency. The key difference between recognized digital cash and anonymous digital coins is that in the case of recognized electronic coins, the financial institution creates the serial variety; however, in the case of anonymous digital coins, the patron is the only one who creates the serial range the usage of a blind signature system. This approach that the issuing financial institution can not connect the purchaser with the serial range of the deposited cash and, in this respect, the patron’s transactions remain private. As proven in Figure the steps involved in anonymous electronic cash are as follows,

    • The purchaser will generate a random number called PQP1. From that, he creates any other wide variety known as a blind wide variety. Suppose the blind wide variety is BABC.
    • The purchaser will ship the created blind number to the financial institution.
    • The financial institution will send lower back the electronic currency with the blind variety to the client.
    • During a transaction, the consumer will now not use the blind quantity. Instead, he’s going to use the original quantity.
    • Therefore both the merchant and the financial institution will most effectively have the original number. They can not hint at the money as they’re not privy to the relationship between the blind range and the unique range.

    Other techniques;

    The second technique with the aid of which electronic cash may label is primarily based on the involvement of the bank in transactions. Based on the volume of the involvement it can further categorize as online or as offline digital cash. When it involves online electronic currency, the financial institution ought to actively participate in the transaction between the customer and the service provider. Such as earlier than the purchase transaction of a selected purchaser receives entire the merchant can verify from the bank in real-time; whether or not the electronic coins supplied by way of the client are suitable and have now not existed spent earlier than or the serial wide variety is legitimate.

    Offline electronic currency does no longer require the involvement of the bank to finish the transaction between the purchaser and service provider. If the client gives digital cash to a service provider, to pay for the purchase the service provider will receive the cash and will no longer validate it online. The merchant might acquire all of the electronic coins and validate them together at a fixed time every day.

    More things;

    Hence out of these awesome styles of digital coins; it could be visible that there may be four opportunities for digital cash. They exist identified online, identified offline, nameless online, and anonymous offline electronic currency. Out of these 4 sorts, anonymous offline digital coins creates the maximum complicated sort of digital coins due to the double-spending problem.

    Whereas if the same piece of cash stands spent two times at unique locations; it can’t exist tracked or avoided as the financial institution doesn’t always involve in any degree of the transaction. The risk of double-spending includes different varieties of electronic coins as well. But upon detection, such conditions may easily track and averted; because the financial institution is part of the transaction sooner or later between the customer and the service provider.

    Electronic Cash Meaning Definition Types Essay Image
    Electronic Cash Meaning Definition Types Essay; Image by Mudassar Iqbal from Pixabay.
  • Cash Conversion Cycle Working Capital Meaning and Definition

    Cash Conversion Cycle Working Capital Meaning and Definition

    Cash Conversion Cycle Working Capital, its example, importance, Meaning, and Definition; It is a formula in management accounting that measures how effectively a company’s managers manage their working capital. CCC measures the length of time between purchasing inventory from a company and receiving cash from its account. CCC uses management to see how long a company’s cash has been tied to its business.

    Cash Conversion Cycle Working Capital, it’s Meaning and Definition, also their formula examples, importance.

    What is Cash Conversion Cycle (CCC)? The Cash Conversion Cycle, also known as the Net Operating Cycle or Working Capital Cycle, shows the time span between a company’s payment of raw materials, storage, storage, and receipt of cash from the final sale of finished goods. Simply put, the cash conversion cycle is a measure of operational efficiency and describes the time it takes a company to hide its investment in inventory and other inflows in cash flow. This determines by adding the number of days required for each phase of the cycle.

    To understand it better, let’s take an example. Suppose a company holds raw materials for an average of 60 days, receives a loan from a material supplier for an average of 15 days, the production process takes an average of 15 days, finished products keep in process for 30 days, and a debtor grants an average loan of 30. day. So, the total time it takes the company to generate cash from its operations is 120 days; 60 – 15 + 15 + 30 + 30 days. That represents by the working capital cycle.

    In equation form, the cash conversion process can express as follows:

    Cash conversion cycle = R + W + F + D – C, where;

    • R as = storage time of raw materials
    • W as = retention period in progress (Work-in-progress)
    • F as = storage time of finished product (Finished goods)
    • D as = recovery phase (debtor)
    • C as = credit term of the supplier (creditor or vendor)

    What is the definition of a cash conversion cycle (CCC)?

    Cash Conversion Cycle (CCC) is a metric that expresses the time (measured in days) it takes a company to convert its investment in inventory and other resources into cash flow from sales. Also known as the net operating cycle or simply the cash cycle, the CCC seeks to measure how long each incoming net dollar tie-up in the production and sales process before being converted into cash.

    This metric takes into account how long it took a company to sell its inventory, how long it took to collect its receivables, and how long it took to pay its bills. CCC is one of several quantitative metrics that helps assess the effectiveness of a company’s operations and management. A downward trend or constant CCC value over some period of time is a good sign, while an increasing value should lead to further investigation and analysis based on other factors. It should note that the CCC only applies to certain sectors that depend on inventory management and related activities.

    How does the Cash Conversion Cycle (CCC) work?

    If a company, or its management, takes a long time to collect unpaid accounts, has too much inventory available, or pays its fees too quickly, then the CCC will extend. A longer CCC means it will take longer to make money, which can mean bankruptcy for small businesses. If a company collects unpaid payments quickly, estimates inventory requirements correctly, or pays its bills slowly, it lowers CCC. A shorter CCC means a healthier company.

    The additional money can then use to make additional purchases or pay off outstanding debts. When a manager has to pay his suppliers quickly, it calls liquidity, which is bad for the company. When a manager is not able to collect payments fast enough; this knows as liquidity delay, which is also bad for the company.

    What is the relationship between the money or cash conversion cycle and working capital?

    The company implements various procedures to give operational legitimacy to its tactics and strategies. These practices also play a key role in maintaining or improving a company’s financial and competitive prospects; particularly in valuing working capital, curbing waste, and overseeing the company’s money conversion cycle.

    Cash conversion cycle;

    A company’s cash conversion cycle consists of the operational path that transactions take to make money for the company. It begins with the review and verification of prospects, assessment of the client’s assets and creditworthiness, and approval of credit for a particular business or range of businesses. After a company ships goods to users, the accounting manager records the underlying claims; also known as customer claims or accounts receivable. The cash conversion cycle of a business also goes through the receipt of customer funds; as well as collection and recovery efforts – when it comes to the customer default, bankruptcy, or insolvency.

    Working capital;

    Working capital corresponds to the company’s current assets minus current liabilities. In financial terminology, “short term” refers to a period of 12 months or less. For example, short-term debt matures in 365 days, and cash – a short-term asset – is used in the company’s business over the next 52 weeks. Working capital is a liquidity indicator that gives an idea of ​​how much money a company will have over the next 12 months. When people in finance talk about short-term assets and debt, they are talking about short-term resources and debt.

    Connection or Relationship;

    Although the concepts are different, working capital and cash conversion cycles interact within the operating engine of a company. Businesses need cash to build strategic trading alliances, make money; and, offer items that will enhance their competitive status over time. Cash is a constant element of running a business, but is often more important in the short term because the business must pay its bills and generate income to survive into the future – say, one year, two, five, or ten years.

    Importance of Significance;

    In a corporate context, discussions about working capital help senior management sow the seeds of economic success by engaging in effective activities every day to put the business on a solid operational footing. For executives, talking about the money conversion cycle is a money saver, an initiative that will help them avoid waste; avoid significant operational losses, and replenish the company’s coffers; all of which will keep the company out of financial trouble and straying from Niagara Falls finances.

    Interpretation of the cash conversion cycle;

    The cash conversion cycle formula is designed to assess how efficiently a company manages its working capital. As with other cash flow calculations, the shorter the cash conversion cycle; the better it is for the company to sell inventory and get cashback from those sales while paying suppliers.

    The cash conversion cycle should compare with companies in the same industry and should follow trends. For example, measuring the transformation cycle of a company in its cycle in previous years can help assess whether its working capital management is deteriorating or improving. Additionally, comparing a company’s cycles to those of its competitors can help determine whether a company’s money conversion cycle is “normal” compared to competitors in the industry.

    Explanation;

    The meaning that can derive from the company’s money conversion cycle is as follows:

    • If a company’s management takes longer to collect its accounts receivable balance, has too much cash, or pays its fees and obligations too quickly; it will prolong the net operating cycle.
    • A longer money conversion cycle usually means it will take longer for the company to make money. This can lead to liquidity problems and bankruptcy for small businesses.
    • When company management collects outstanding payments from accounts receivable quickly, correctly estimates required inventory levels, or pays bills and invoices slowly; it shortens the net operating cycle.
    • A shorter cash conversion cycle usually means a healthier company. This way, the extra money can then use for further purchases or to pay off any outstanding debts.
    • When a manager with a longer money conversion cycle has to pay their supplier quickly; it’s called cashing out, which is bad for the company.
    • When a manager with a longer money conversion cycle cannot collect payments from debtors fast enough; this knows as liquidity delay, which is also bad for the company.
    • If the company’s business model results in a negative money conversion cycle; it means it can manage its working capital efficiently enough that it can, on average, buy stock, sell finished products, and collect the debt before commitments make. is because. This is an ideal situation for business.
    Cash Conversion Cycle Working Capital Meaning and Definition Image
    Cash Conversion Cycle Working Capital Meaning and Definition; Image by Mohamed Hassan from Pixabay.
  • Difference between Cash Discount and Trade Discount

    Difference between Cash Discount and Trade Discount

    Cash Discount and Trade Discount Difference; Market or business allows giving two types of discount first cash and trade. Maybe we want to know first what is a discount? A deduction from the usual cost of price or something else; typically given for prompt or advance payment or to a special category of buyers. A cash discount allows stimulating instant payment of the goods purchased; while a trade discount is one that allows the wholesaler to the retailer, calculated the list price of the product. The main difference between the cash discount and trade discount is that the ledger accounts open for a cash discount, but not for a trade discount; That’s mean the ledger of merchant account book is we allow cash discount add in book columns, but trade discount does not allow to add or entry on account book columns.

    Discount is one of the easiest ways to increase sales and so boost profit, consumed by various traders, businessmen or businesswomen, and shopkeepers all around the world are to offer or proposal a discount. It is simply a reduction in the selling price of the goods; which not only attracts customers but also persuades them to make more selling. The Discount classifies as a cash and trade discount, depending on the option and selling of the product.

    Difference between Cash Discount and Trade Discount Image
    Difference between Cash Discount and Trade Discount; Image from ilearnlot.com.
  • Explanation of Statement of Cash Flows with Objectives

    Explanation of Statement of Cash Flows with Objectives

    What does the Statement of Cash Flows mean? In accounting, a statement of cash flows, also known as the cash flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Explanation of Statement of Cash Flows with Objectives. The statement of cash flows is one of three very important financial reports. That managers and investors look at when analyzing a company’s past or present financial status.

    Know and Understand the Concept of the Statement of Cash Flows.

    The balance sheet and the income statement are the other two reports. All of these reports are very important in running a successful business. But the statement of cash flows is the most important. It is like the blood of a company since it would not survive successfully without it. Cash on hand can be much more important. Than income, profits, assets, and liabilities put together, especially in the early stages of any company.

    Introduction:

    The statement of cash flows tells us how much cash we have on hand after all costs are met. It shows how much cash we started with and how much we pay out. There are two parts to the statement of cash flows which are the top and bottom halves. The top half deals with the inflow and outflow of the company’s cash.

    The bottom half of the statement reports where the funds end up. Just like the balance sheet, the top and bottom halves of a cash flow statement match. Knowing just how important it is to have cash on hand to pay the bills we want to make sure and review cash flow statement regularly.

    Cash flow is a little more honest than an income statement because the cash flow statement shows money coming in only when we deposit it and money going out only when we physically write out a check. Because the statement of cash flows reflects the actual receipt of cash, no matter where it comes from, the entries are a bit different from the revenue shown in a company’s income statement.

    These funds are usually made up of gross receipts on sales, dividend and interest income, and invested capital. Gross receipts on sales represent the total money that we take in on sales during the period. Gross receipts are based on our gross revenue, of course, but they also take into account when you receive payment. Dividend and interest income is the income that we receive from savings accounts and other securities.

    Meaning:

    The statement of cash flows is one of the financial statements issued by business and describes the cash flows into and out of the organization. Its particular focus is on the types of activities that create and use cash, which are operations, investments, and financing. Though the statement of cash flows is generally considered less critical than the income statement and balance sheet, it can use to discern trends in business performance that are not readily apparent in the rest of the financial statements.

    This is one of those amounts that are also reporting on the income statement and should be the same as long as we receive the money during the period covered by the cash flow statement. Invested capital is part of the owner’s equity in the balance sheet. Although it does not represent revenue from our business operations and would not be part of the income statement, it can be a source of cash for our company.

    Extra Knowledge:

    The statement of cash flows keeps track of the costs and expenses that incur for anything and everything. Some of the expenses appear in the income statement and some don’t because they don’t directly relate to our costs of doing business. These funds consist of the cost of goods produced, sales, administration, interest expense, taxes, etc. The cost of goods produced is exactly that, the cost incurred to produce our product or service during the period. Sales expenses are the same expenses that appear in an income statement except that paying off bills or postponing payments may change the amounts. On to the bottom half of the statement of cash flows which shows where the money is ending up.

    When the company’s cash reserves raise the money flows into one or more of asset accounts. The bottom half of the cash flow statement keeps track of what is happening to those accounts. This part of the statement consists of changes in liquid assets and net change in cash position. With cash flowing in and out of the company, liquid assets are going to change during the period covered by the cash flow statement. The items listed in this portion of the cash flow statement are the same ones that appear in the balance sheet. Raising the level of our liquid asset accounts has the effect of strengthening the cash position.

    Explanation of Statement of Cash Flows with Objectives
    Explanation of Statement of Cash Flows with Objectives, #Pixabay.

    Cash flow analysis:

    To properly construct a cash flow analysis, we have to look at three very important activities which are operating, investing and financing.

    • Operating activities are the cash components that are generating from the sales of the companies goods or products affecting the core business operation. These include the purchase of raw materials, production costs, advertising cost and even the delivery to customers.
    • Investing activities are straight forward items that report adjustments in the balances of fixed asset accounts like equipment, buildings, land, and vehicles. Investing activities include making and collecting loans and acquiring and disposing of investments and property, plant and equipment.
    • Financing activities are cash adjustments to fixed liabilities and owners’ equity. Cash increases when the company takes up a loan or raised capital when dividends are paid out, cash decreases accordingly. Financing activities involve liabilities and owner’s equity items. They include obtaining resources from owners and providing them with a return on their investments and borrowing money from creditors to repay the amounts borrowed.

    #Objectives of the statement of cash flows:

    There are a few main objectives of the statement of cash flows one of which is to help assess the timing, amounts and the uncertainty of future cash flows. This is one of the quarterly financial reports that publicly traded companies are required to release to the public. Because public companies tend to use accrual accounting. The income statements they release each quarter may not necessarily reflect changes in their cash positions.

    The statement of cash flows is very important to businesses. Because it helps investors see where the company can benefit from better cash management. There are many profitable companies today that still fail at adequately managing their cash flow. So it is important to be able to see where the weaknesses are to correct them.

    Conclusion of Objectives:

    In conclusion, the objectives are to explain why the statement of cash flows is very important for companies and people. That want to invest in a certain company. It shows how well a company manages its cash in-comings and outgoings as well as showing how profitable a company might be or become.

    It is a very clear document to understand so that we don’t fall victim to making a profit while still going broke. It’s also helpful for the companies finance department. So that they can see where the company stands to get more potential investors. It’s a great resource to look at to recap a company’s financial standing that most people can understand.

    What does Financial Statements mean?

    A firm communicates to the users through financial statements and reports. The financial statements contain summarized information of the firm’s financial affairs, organized systematically. Preparation of the financial statements is the responsibility of top management. They should prepare very carefully and contain as much information as possible.

    Two basis financial statements prepared for external reporting to owners, investors, and creditors are:

    Balance sheet:

    The balance sheet contains information about the resources and obligations of a business entity and about. Its owner’s interests in the business at a particular point of time. In accounting’s terminology, balance sheet communicates. Information about assets, liabilities and owner’s equity for a business firm as on a specific date. It provides a snapshot of the financial position of the firm at the close of the firm’s accounting period.

    Profit and loss account:

    The profit and loss account presents the summary of revenues, expenses and net income (or net loss) of a firm for some time. Net income is the amount by which the revenues earned during a period exceed the expenses incurred during that period.

    More information requires planning and controlling and therefore the financial accounting information is presenting in different statements and reports in such a way as to serve the internal needs of management. Financial statements are preparing from the accounting records maintaining by the firm.

    The various objectives of financial statements are:

    • To provide reliable financial information about economic resources and obligations of a business enterprise.
    • To provide reliable information about changes in the resources of an enterprise that result from the profit-directed activities.
    • Also, financial information that assists in estimating the earning potential of the enterprise.
    • To provide other needed information about changes in economic resources and obligations.
    • To disclose, to the extent possible, other information related to the financial statement that is relevant to statement users.
  • What does Cash Flow Statements mean? Introduction, Meaning, and Definition

    What does Cash Flow Statements mean? Introduction, Meaning, and Definition

    Cash Flow Statements; In financial accounting, a cash flow statement, also known as the statement of cash flows, is a financial statement. That shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. What does Cash Flow Statements mean? Introduction, Meaning, and Definition; Essentially, the cash flow statement concerns with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.

    Know and Understand the concept of Cash Flow Statements with their Introduction, Meaning, and Definition.

    The cash flow statement was previously known as the flow of funds statement. The cash flow statement reflects a firm’s liquidity. The balance sheet is a snapshot of a firm’s financial resources and obligations at a single point in time. And, the income statement summarizes a firm’s financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues.

    The cash flow statement includes only inflows and outflows of cash and cash equivalents. It excludes transactions that do not directly affect cash receipts and payments. These noncash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Noncash activities are usually reporting in footnotes. As well as know more; Cash Flow Statement: Explanation, Classification, and Objectives.

    #Introduction to Cash Flow Statements:

    Did you know? You can earn our Financial Statements Certificate of Achievement when you join PRO Plus. To help you master this topic and earn your certificate, you will also receive lifetime access to our premium financial statements materials. These include our video seminar, visual tutorial, flashcards, cheat sheet, quick tests, a quick test with coaching, business forms, and more. The official name for the cash flow statement is the statement of cash flows. The statement of cash flows is one of the main financial statements.

    #Meaning of Cash Flow Statements:

    Cash Flow Statement is a statement which describes the inflows (sources) and outflows (uses) of cash and cash equivalents in an enterprise during a specified period. Such a statement enumerates the net effects of various business transactions on cash. And, its equivalents and takes into account receipts and disbursements of cash.

    A cash flow statement summarizes the causes of changes in the cash position of a business enterprise between dates of two balance sheets. According to AS-3 (Revised), an enterprise should prepare a cash flow statement and should present it for each period for which financial statements are prepared.

    Extra Knowledge:

    The terms cash, cash equivalents, and cash flows are used in this statement with the following knowledge of meaning below are:

    • Cash comprises cash on hand and demand deposits with banks.
    • The cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
    • Cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes.
    • For an investment to qualify as a cash equivalent. It must be readily convertible to a knows amount of cash and be subject to an insignificant risk of change in value. Therefore, an investment normally qualifies as a cash equivalent only. When it has a short-maturity, of say, three months or less from the date of acquisition.
    • Investments in shares are excluding from cash equivalents unless they are, in substance, cash equivalents. For example, preference shares of a company acquired shortly before their specified redemption date.
    • If the effect of the transaction increases cash and its equivalents. It calls an inflow (source) and if it results in the decrease of total cash, it knows as outflow (use) of cash.

    Cash flows exclude movements between items that constitute cash or cash equivalents. Because these components are part of the cash management of an enterprise rather than part of it’s operating, investing and financing activities. Cash management includes the investment of excess cash in cash equivalents.

    What does Cash Flow Statements mean Introduction Meaning and Definition
    What does Cash Flow Statements mean? Introduction, Meaning, and Definition, #Pixabay.

    #Definition of Cash Flow Statements:

    Cash flow statements a statement of changes in the financial position of a firm on a cash basis. It reveals the net effects of all business transactions of a firm during. A period on cash and explains the reasons for changes in cash position between two balance sheet dates.

    It shows the various sources (i.e., inflows) and applications (i.e., outflows) of cash during. A particular period and their net impact on the cash balance. The following definition of Cash flow statements as define by different-different authors below;

    According to Khan and Jain:

    “Cash Flow statements are statements of changes in financial position prepared on the basis of funds defined as cash or cash equivalents.”

    The Institute of Cost and Works Accountants of India defines Cash Flow statement as,

    “A statement setting out the flow of cash under distinct heads of sources of funds and their utilization to determine the requirements of cash during the given period and to prepare for its adequate provision.”

    Thus, a cash flow statement is a statement which provides a detailed explanation for the changes in a firm’s cash balance during a particular period by indicating. The firm’s sources and uses of cash and, ultimately, the net impact on cash balance during that period.

    Explanations:

    The cash flow statement intends to provide information on a firm’s liquidity and solvency. And, its ability to change cash flows in future circumstances provide. Additional information for evaluating changes in assets, liabilities, and equity improve the comparability of different firm’s operating performance by eliminating the effects of different accounting methods indicate the amount, timing and probability of future cash flows.

    The cash flow statement has been adopting a standard financial statement. Because it eliminates allocations, which might derive from different accounting methods. Such as various time-frames for depreciating fixed assets.

  • Cash Flow Statement: Explanation, Classification, and Objectives

    Cash Flow Statement: Explanation, Classification, and Objectives

    What does Cash Flow Statement mean? A cash flow statement counters the ambiguity regarding a company’s solvency that various accrual accounting measures create. We are studying Cash Flow Statement: Explanation, Classification, and Objectives; In financial accounting, a cash flow statement, also known as statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.

    Here explains the Concept of Cash Flow Statement with their Explanation, Classification, Objectives, and Limitations.

    The following concept is; Explanation of Cash Flow Statement, Classification of Cash Flow Statement, Objectives of Cash Flow Statement, and Limitations of the Cash Flow Statement. Meaning: A Cash Flow Statement is a statement which is prepared by acquiring Cash from different sources and the application of the same for different payments throughout the year. It is prepared from analysis of cash transactions, or it converts the financial transactions prepared under accrual basis to cash basis.

    The information about the number of resources provided by operating activities or net income after the adjustment of certain other charges can also obtain from it. The changes in Cash both at the beginning and at the end can also know with the help of this statement and that is why it is called Cash Flow Statement.

    #Explanation of Cash Flow Statement:

    A cash flow statement is an important indicator of financial health because a company can show profits while not having enough cash to sustain operations. It is a financial report that shows to the user the source of a company’s cash and how it was spent over a specific period. A cash flow statement counters the ambiguity regarding a company’s solvency that various accrual accounting measures create.

    It also categorizes the sources and uses of cash to provide the reader with an understanding of the amount of cash a company generates and uses in its operations. As opposed to the amount of cash provided by sources outside the company. Such as borrowed funds or funds from stockholders. They also tell the reader how much money was spent on items that do not appear on the income statement. Such as loan repayments, long-term asset purchases, and payment of cash dividends.

    The cash flow statement was previously known as the flow of funds statement. The cash flow statement reflects a firm’s liquidity. The balance sheet is a snapshot of a firm’s financial resources and obligations at a single point in time, and the income statement summarizes a firm’s financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues.

    Extra Knowledge:

    They include only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. It is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.

    It is intended to provide information on a firm’s liquidity and solvency and its ability to change cash flows in future circumstances provide additional information for evaluating changes in assets, liabilities, and equity improve the comparability of different firms’ operating performance by eliminating the effects of different accounting methods indicate the amount, timing and probability of future cash flows. The cash flow statement has been adopting as a standard financial statement because it eliminates allocations, which might derive from different accounting methods, such as various time-frames for depreciating fixed assets.

    #Classification of Cash Flow Statement:

    The cash flow statement should report cash flows during the period classification by operating, investing and financing activities.

    Thus, cash flows are classifying into three main categories:

    1. Operating activities.
    2. Investing activities.
    3. Financing activities.

    Now, explain;

    Operating Activities:

    Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, pay dividends, repay loans, and make new investments without recourse to external sources of financing.

    Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the enterprise. Therefore, they generally result from the transactions and other events that enter into the determination of net profit or loss.

    Explanations:

    Examples of cash flows from operating activities are:

    • A cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and other policy benefits.
    • Cash receipts from the sale of goods and the rendering of services.
    • Cash receipts from royalties, fees, commissions, and other revenue.
    • The cash payments to suppliers of goods and services.
    • Cash payments to and on behalf of employees.
    • Refunds or cash payments of income taxes unless they can specifically identify with financing and investing activities, and.
    • Cash receipts and payments relating to futures contracts, forward contracts, option contracts, and swap contracts when the contracts are heling for dealing or trading purposes.

    Some transactions, such as the sale of an item of plant, may give rise to a gain or loss which includes in the determination of net profit or loss. However, the cash flows relating to such transactions are cash flows from investing activities.

    Investing Activities:

    Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been making for resources intended to generate future income and cash flows.

    Explanations:

    Examples of cash flows arising from investing activities are:

    • The cash payments to acquire fixed assets. These payments include those relating to capitalized research & development costs and self-constructed fixed assets.
    • Cash receipts from the disposal of shares, warrants, or debt instruments of other enterprises and interests in the joint venture.
    • Cash advances and loans made to third parties, other than advances and loans made by a financial enterprise.
    • The cash receipts from disposal of fixed assets.
    • Cash receipts from the repayment of advances and loans made to third parties, other than advances and loans of a financial enterprise.
    • Cash payments to acquire shares, warrants, or debt instruments of other enterprises and interests in joint ventures. Other than payments for those instruments considering to be cash equivalents and those held for dealing or trading purposes.
    • The cash payments for futures contracts, forward contracts, option contracts, and swap contracts except when the contracts are heling for dealing or trading purposes, or the payments are classifying as financing activities, and.
    • Cash receipts from futures contracts, forward contracts, option contracts, and swap contracts except when the contracts are heling for dealing or trading purposes or the receipts are classifying as financing activities.
    Financing Activities:

    Financing activities are activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise. The separate disclosure of cash flows arising from financing activities is important because .it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise.

    Explanations:

    Examples of cash flows arising from financing activities are:

    • Cash proceeds from issuing shares or other similar instruments.
    • Cash proceeds from issuing debentures, loans, notes, bonds, and other short-or long-term borrowings, and.
    • The cash repayments of amounts borrowed such as redemption of debentures, bonds, preference shares.

    Cash Flow Statement Explanation Classification and Objectives
    Cash Flow Statement: Explanation, Classification, and Objectives, #Pixabay.

    #Objectives of Cash Flow Statement:

    The primary objectives of the cash flow statement are to supply the necessary information relating to the generation of cash to the users of the financial statement. It also highlights the future or prospective cash positions i.e. cash or cash equivalent. The inflows and outflows of cash can represent with the help of this statement.

    The main objectives of the cash flow statement are:

    Measurement of Cash:

    Inflows of cash and outflows of cash can measure annually. Which arise from operating activities, investing activities and financing activities.

    Generating inflow of Cash:

    Timing and certainty of generating the inflow of cash can know. Which directly helps the management to take financing decisions in the future.

    Classification of activities:

    All the activities are classifying into operating activities, investing activities and financing activities. Which help a firm to analyze and interpret its various inflows and outflows of cash.

    Prediction of the future:

    A cash flow statement, no doubt, forecasts the future cash flows. Which help the management to take various financing decisions since synchronization of cash is possible.

    Supply necessary information to the users:

    A cash flow statement supplies various information relating to inflows and outflows of cash to the users of accounting information in the following ways:

    • Assess the ability of a firm to pay its obligations as soon as it becomes due.
    • Analyze and interpret the various transactions for future courses of action.
    • To see the cash generation ability of a firm, and.
    • Ascertain the cash and cash equivalent at the end of the period.
    Helps the management to ascertain cash planning:

    No doubt, a cash flow statement helps the management to prepare. Its cash planning for the future and thereby avoid any unnecessary trouble.

    Evaluation of future cash flows:

    Whether the cash flow from operating activities is quite sufficient in the future to meet the various payments e.g. payment of expense/debts/dividends/taxes.

    Assessing liquidity and solvency position:

    Both the inflows and outflows of cash and cash equivalent can know, and as such, liquidity and solvency position of a firm can also maintain as timing and certainty of cash generation knows i.e. It helps to assess the ability of a firm to generate cash.

    #Limitations of the Cash Flow Statement:

    Despite several uses, the cash flow statement suffers from the following limitations:

    • As the cash flow statements based on the cash basis of accounting. It ignores the basic accounting concept of accrual basis.
    • A cash flow statements, not a substitute for an income statement it is complementary to an income statement. Net cash flow does not mean the net income of a firm.
    • A cash flow statement is also not a substitute of funds flow statement which. Provides information relating to the causes that lead to an increase or decrease in working capital.
    • The comparative study of cash flow statements may give misleading results.
    • Some people feel that as working capital is a wider concept of funds. A funds flow statement provides a more complete picture than the cash flow statement, and.
    • Cash flow statements not suitable for judging the profitability of a firm as non-cash charges are ignored while calculating cash flows from operating activities.
  • What is the Cash Budget? Meaning and Definition

    What is the Cash Budget? Meaning and Definition

    What Do You Mean Cash Budget? A cash budget is a budget or plan of expected cash receipts and disbursements during the period. The cash budget is a written estimate of a firm’s future cash position. It predicts for some future period the cash receipts from different sources, cash disbursements for different purposes and the resulting cash position generally on a monthly basis as the budget period develops. Cash budget consists of all expected inflows of cash including income and non-income sources such as receipts from the sale of stocks and bonds and receipts from the sale of fixed assets. It is, thus, a formal presentation of-expected circular flow of cash through the business. So, what is the question; What is the Cash Budget? Meaning and Definition.

    Here are explain What is the Cash Budget? with Meaning and Definition.

    What is the meaning of Cash Budget? A cash budget is an estimated projection of the company’s cash position in the future. The cash budget depicts the movement of cash whereas the projected income statement presents account for all sources of income to be tapped and for all classes of expenses to be incurred during a stated period and show how much profit, if any, is expected to be earned in a future period.

    Definition of Cash Budget:

    A formal presentation of-expected circular flow of cash through the business. Likewise, cash budget provides for all types of cash outgo including payments of expenses accrued in the prior periods, the forecast period, or the subsequent periods (pre-payments) or as payments not immediately related to expenses such as the purchase of fixed assets or dividend distribution to the stockholders. Disbursements in respect of the purchase of fixed assets or dividend distribution would not find the place in the income statement. Similarly, there are certain items that would appear in the income statement but are not included in the cash budget.

    A cash budget is defined as:

    “Cash budget shows in detail budgeted cash receipts and payments of both capital and revenue nature. In addition, a cash budget also determines the expected cash balance of the organization business at specific intervals.”

    The usual forecast period of a cash budget is one year broken down by monthly periods or weekly periods. This allows incorporation of seasonal variations in cash flow. When cash flows are relatively stable, the finance manager may prepare a budget for full one year period. When the outlook is very uncertain, he may have to be satisfied with a projection for only quarterly.

    What is the Cash Budget Meaning and Definition
    Wallet Cash; What is the Cash Budget? Meaning and Definition. Image credit from ilearnlot.com.