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CH-5: BUSINESS ARITHMETIC

CODE:241605010112

NOTES:

1. Break-even ( Multiple product ) = FP / WACPU
WACPU calculated on the basis of sales mix percentage

2. Cash flow statement:
A cash flow statement is a financial statement that provides aggregate data regarding all cash
inflows a company receives from its ongoing operations and external investment sources. It also
includes all cash outflows that pay for business activities and investments during a given period.
A cash flow statement tells you how much cash is entering and leaving your business. Along with
balance sheets and income statements, it's one of the three most important financial
statements for managing your small business accounting and making sure you have enough cash
to keep operating.
Examples of cash inflows in this category are cash received from debtors for goods and services,
interest and dividend received on loans and investment.
Examples of cash outflows in this category are cash payments for goods and services;
merchandise; wages; interest; taxes; supplies and others.

3. Cash flow projection (CFP):
It shows how cash is expected to flow in and out of a business. It is an important tool for cash
management and gives a better idea to entrepreneur how much capital investment is necessary
for the business.
Need for cash projection:
a) Make sure that the business can afford to pay its suppliers and employees.
b) Make provisions for other payments and receipts
c) Expansion of business
d) Uncertain nature of business ( future uncertainties)

Frequency and period of preparing CFP:

a) The length of the period depend on the nature of the business, as it is related to day to day
operation then the projections would cover 3-6 months or 13 – 26 weeks.
b) If it is for a business plan then it can be monthly for the first year , quarterly for next two
years and annually thereafter.

Accuracy of CFP:

It depends on the period and horizon involved.

Steps to develop a CFP: