Team 1st :

Annissa Balqis Budhiani 20190420183

Rini Muhrisa 20190420104
Salma Athillah Ihfa 20190420181
Tri Hapsari Rahmadani 20190420267

BEGINNING WITH BUDGET CONVENTIONAL AND CASH FLOW

Budgets are the bedrock on which most non-profit organizations build their financial strategy.
The allocation of income and expenses for a given period, usually one year, represents a
quantitative plan for the coming year
A. PRACTICAL FINANCIAL MATTERS
1. Why not assign all fiscal matters to the Finance Committee?
: because it is to make things so simple and easy for everyone e who sits on the board or
in a managerial capacity can quickly grasp the essential financial issues confronting the
institution.
2. How does the budget we see at every board meeting compare with a cash flow budget?
: the firm is use ASB (Annualized Summary Budget), it’s format presents the total
income and expenses for one year in a single column.
Exhibit 2.1 :

Exhibit 2.1 ANNUALIZED SUMMARY BUDGET

For the company who running as non profit use these format because most people does not
curious about what happening on a daily, weekly, monthly, or even quarterly basis.
Exhibit 2.2 :

In format of exhibit 2.2 actually use the same data but it explained clearly what happen month by
month with interesting format.
For some items that have some amounts every month are the fixed cost or fixed expenses Other
items increase or decrease on a monthly basis, and these are called variable income or expenses.
This format contain a mixture cost (variable and fixed cost). Yet the conventional budget may
not give you a clear understanding of which is which, since the summary totals do not
distinguish between them.

3. What are the benefits of the cash flow budget that we don’t obtain from the annualized
summary budget?
Annual Summary Budget Cash Flows Budget
Does not directly provide much information Provides clearly the information about
about operations and their relationship to time operations and their relationship

Summary cash flow budget help members or others parties to understand easily about the
condition of the firm. Through these summary cash flow budget we only pay attention to main
things that can summarize the conditions of the firm. So that we do not need to pay attention for
all accounts.
Exhibit 2.3 :

::
: Provide a minimalist summary cash flow budget and only provide information about monthly,
income, and expenses totals. It is summary of the conditions of the firm so members do not need
to pay attention for all accounts.

4. Why does a graph of cash flow information tell us more than the detailed numbers about
the financial position of the organization?
: It tells more because it capture the curve of income and expense in a graph, everyone
can see at a glance the overarching ebb and flow of money. Instead of focusing on each
individual item within the budget, they can rapidly gain an understanding of the global
fiscal position of the institution. Again, the simplicity of cash flow thinking, as portrayed
graphically, allows everyone in a leadership capacity to understand and to participate in
the financial decisionmaking process.
Figure 2.1 illustrates the Cash Flow Forecaster’s comparison of income and expense. As you can
see, the picture of income and expense provides a great deal of information in a compact and
easily accessible form. For example, the graph makes it clear that both income and expense
fluctuate in a relatively narrow band, with no big peaks and valleys in either category.

When income and expense are merged as in Figure 2.2, it’s easy to see that the institution is
running with a major spike in income in May, then a slow summer that gradually resolves itself
as fall and winter figures begin to reflect the growing income during these seasons. For much of
the year, the institution has negative numbers on a monthly basis. It shows the institution on
september is not getting good income. So when using the graph, we can know the detail of the
major spike that happened after it merged together.
Figure 2.3 looks very similar to the graph in Figure 2.2, because we intentionally specified no
surplus or shortfall at the end of the prior year. The graph would look very different with a
starting surplus or shortfall.

For example, if the organization had started the year with $50,000 in the bank, the graphic image
for accumulated cash or debt would look like the one in Figure 2.4. Notice that the shape of the
curve remains the same, but the curve is elevated above the zero line that differentiates positive
numbers from negative numbers. The new position makes it clear that no months are spent in a
deficit position.

So the conclusion is the graphic on cash flow with rolling historical data can make future
projections easier to complete. These tools can be critically important for growth, seasonal trends
or shrinking companies.
 B. USES OF CASH FLOW BUDGETING

To better understanding about the implications of budget formats in practice, we can see
from one of our client problem. A client named Alice told us that her nonprofit institution’s chief
financial officer refused to see a serious financial problem that the organization was facing.
At the last board meeting, one of the first agendas was budget monitoring. However, it
appears that the majority of board members are not interested in discussing the figures from year
to year. Alice wanted to make them see a serious cash crisis coming; however, it seemed that she
had been rejected by members of the board who seemed unable or unwilling to face the crisis she
saw coming.

Exhibit 2.4 shows that the forecast in the budget for the next year shows projected
expenditure will exceed projected income even though the funds transferred from the previous
year will help, it is still not enough to balance the budget.
Alice told us that the board acknowledged that there might be a shortfall, but still they
saw little reason for concern. In addition, an executive at a local corporation named Don said the
company is in good condition and nothing to worry about. However, Alice considered there was
a serious problem in the budget.
 After discussing how the cash flow budget reveals a number of problems, it finally
becomes clear that there is a very serious problem.
 Exhibit 2.6 takes the information from the Cash Flow Forecast in Exhibit 2.5 and
compresses it to an absolute baseline that reveals the opening balances and monthly projections
for income and expenses. At first glance it appears that the figures in the cash accumulation
column indicate the same problem. The remaining funds are spent every month, until they run
out in November.
It turned out that Alice's concern was right, the company was facing a major problem that
could not be resolved at the end of the fiscal month but needed to change at the beginning of the
year. Don apparently saw the same problem as Alice saw. He saw the erosion of funds carried
over during the year, but he did not take action immediately, he felt he agreed with the idea that
an endowment could serve as a safety net if things turned bad.
 Figure 2.5 Once the income and expenditure graphs are mapped out, a pair of disturbing
qualities is clear. It appears that the organization achieved a large revenue spike during the
month of April, after three months of losses, but the same rapid expenditure during the same
month erased all hopes of moving forward. On top of that, expenses have remained the same,
and so have revenues with the exception of the big spike in July earnings.
This is a clear proof of the company's financial condition for the next one year. The board
members are not aware of the threat because not all of them have a financial background so they
can project the numbers onto a graph like Alice's. The board of directors may also only glimpse
existing reports so that they are fooled by a positive number at the end, even though it is not the
number intended.
 Figure 2.6 shows that the organization is running with negative numbers (experiencing
losses) for almost ten months of the year. It can also be seen that the Institute's financial
trajectory has declined until June. Revenues spiked in July, but they have all declined since then.
Income of the company is negative and it clearly shown they are not in good condition. For Don,
he can said that company is in good condition because he was concentrating on the interest
income from endowments. He had a background in business so the idea of restricted funds is not
fully understood by Don. He continues to believe that in an emergency, institutions can take
advantage of an endowment.
 The graph above shows the company's cash flow for the next year. This shows that
towards the end of the year, the company ran out of cash to fund its operations. After Alice
providing concrete evidence of the company's financial condition, the board members agree to
discuss this problem to finds solution.