Sheet 1 Template For Lasa 2 Part 1 Collections And Payments

Sheet1template A For Lasa2part 1 Collections And Paymentsjanfebmar

Prepare a schedule of collections and payments for a six-month period beginning in March, using provided data, and create related cash flow schedules, including cash gains/losses, surplus or shortages, and net cash flow. Also, analyze the firm's credit policy and suggest improvements if necessary, based on your findings. Use the attached Excel templates for calculations and ensure proper organization, mechanics, APA elements, and style in your report.

Paper For Above instruction

Introduction

Effective cash management is vital for the financial health and operational efficiency of any business. Bob’s Boats, having recently acquired the business, recognizes the importance of establishing a comprehensive cash budget to monitor inflows and outflows, ensuring liquidity while enabling strategic planning. This paper develops a detailed cash flow schedule for the upcoming six months, analyzing collections, disbursements, and cash surpluses or shortages, and concludes with recommendations to optimize credit policies based on the cash flow insights.

Schedule of Collections and Payments

The schedule of collections scrutinizes receivables based on historical collection patterns: 12% of sales collected in the month of sale, 60% in the following month, and 28% in the second month after sale. For example, March collections are computed from February and March sales, with appropriate percentages applied. Using the sales forecast data provided—ranging from $162,000 in January to $648,000 in May—the collections for March through August are calculated accordingly, considering the past collection patterns.

Similarly, expenses for labor, materials, administrative salaries, depreciation, taxes, lease payments, and miscellaneous expenses are scheduled based on their respective monthly figures. Notably, Bob’s planned cash payment of $175,000 upon completing the new boat dock in July is incorporated into cash disbursements. Expenses are matched to the timing of when costs are incurred, with labor and material costs paid the month after incurred, adhering to the company's cash flow pattern.

Cash Gains and Losses

Cash gains originate primarily from customer collections, while cash losses encompass disbursements for operations and capital expenditures. By aggregating inflows and outflows monthly, the schedule illustrates net cash gains or losses, highlighting periods where expenditures exceed receipts, or vice versa. For instance, the substantial expenses in April, coupled with relatively lower collections, may produce a cash shortfall, necessitating borrowing or reallocation of funds.

Cash Surplus or Shortages

Building upon previous schedules, the surplus or shortages schedule projects the running cash balances each month, assuming an initial cash position of $125,000 on March 1 and a minimum required balance of $85,000. When projected cash balances fall below this threshold, it indicates a need for borrowing, while excess balances suggest potential for reinvestment or debt repayment.

Net Cash Flow Analysis

Finally, the net cash flow schedule consolidates all inflows and outflows, revealing the precise timing and amount of cash that must be borrowed or can be re-invested. For example, the project may identify a cash deficit in March and April, necessitating borrowing, while surplus months like May or June might allow for debt repayment or increased investments. These insights inform sound financial planning and ensure liquidity resilience.

Recommendations for Credit Policy

Based on the cash flow analysis, it is vital to assess whether the current credit terms support sustainable business operations. Should cash inflows be inconsistent or insufficient during certain months, tighter credit policies—such as more rapid collection processes or adjustments in credit terms—might be necessary. Conversely, if collections are strong and predictable, expanding credit terms could promote sales growth without jeopardizing liquidity.

Conclusion

This comprehensive cash flow analysis underscores the importance of diligent planning and management in maintaining liquidity and supporting strategic expansion. By meticulously projecting collections, payments, and cash flows, Bob’s Boats can identify potential shortfalls, optimize credit policies, and enhance overall financial stability. Ongoing monitoring and adjustments will be essential as the business evolves, ensuring sound financial health and operational success.

References

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