The Cash Inflows and the Cash Balance - Example

The paper 'The Cash Inflows and the Cash Balance' is a great example of financial and accounting report. The period from 1st January to 30th June has been affected by the credit policies in terms of cash flows especially from January to April where there are negative cash balances which means that the cash outflows are more. than the cash inflows or cash receipts. This may have been caused by the prompt payment of its obligations like credit purchases and other expenses which include salaries and selling and administrative expenses. This explains the reasons why net cash is negative during the early period under budgeting whereas it is negative at a later stage of the forecasted period (Lucas & Rafferty, 2008). In fact, all payments have been made as at 30th June 2015 whereas there are still cash expected to be receipt as at the same date as is shown by the accounts receivables analysis below:

It has been assumed that the bank overdraft as of 30th December 2014 was cleared hence there was no interest charge on bank overdraft during this period. There are several steps or measures that the manager could take to ensure that the cash balance of the store is always positive. These measures are outlined below: of discounts: Norton Company could give a discount to customers who pay within the specified period. As noted in Black (2003) and also in Nickerson & Silverman (2003), the use of discounts will encourage prompt payment hence more cash inflow thus getting positive cash balance.

Negotiate for a longer credit term with suppliers. This will help to harmonize cash payments with cash receipts hence ensuring positive cash balances (Elliott & Elliott, 2011).

Utilization of bank overdraft: the company can use the available overdraft to meet the cash deficit hence get a positive cash balance.

Use of fines: the company could add an additional charge to customers who do not pay in a good time. These punitive charges could false customers to pay promptly and possibly avoid incidences of bad debts hence more cash receipts (Fess and Warren, 2004).

Godfrey, Hodgson & Holmes, S. (2006) defined budgeting as detailed financial planning of the profitability of a company and its means of raising and using resources during a certain period. Budgeting can assist the company in many ways as discussed below:

Picker, R., 2009) and Spiceland and Sepe (2001) have explained how budgeting helps the company in responsibility accounting. When a budget is used every manager is held responsible for the revenue generated and costs incurred in his department. This ensures that the managers are conscious of the costs and hence work to reduce the costs to the minimum.

Budgeting improves the decision-making process in the company (Greuning, 2005). When a manager is faced with a decision-making problem, they refer to the department budget and the master budget to seek guidance hence making an informed decision in a quick way. In this way, the manager is able to make decisions that are in line with the objective of the company as a whole (Hilton, 2004). Budgeting helps to improve communication within the company (Horngren, Datar, and Rajan, 2012). When the budget is being set, department heads and other staff are involved in the process. Lewis & Pendrill (2004) and Steven, Roby, and Gregory (2008), observe that improved communication becomes a major learning opportunity for the members since every department contributes to the budget.