12 SENIOR HIGH SCHOOL

BUSINESS FINANCE
Quarter 3 – Module 4
Budget Preparation, Projected Financial
Statements and Tools Used in Managing
Cash, Receivables and Inventory

NegOr_Q3_Business Finance12_Module 4_v2

 Business Finance – Grade 12
Alternative Delivery Mode
Quarter 3 – Module 4: Budget Preparation, Projected Financial Statements and
Tools Used in Managing Cash, Receivables and Inventory
Second Edition, 2021

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NegOr_Q3_Business Finance12_Module 4_v2

Introductory Message

This Self-Learning Module (SLM) is prepared so that you, our dear learners, can
continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.
Each SLM is composed of different parts. Each part shall guide you step-by-step as
you discover and understand the lesson prepared for you.
Pre-tests are provided to measure your prior knowledge on lessons in each SLM.
This will tell you if you need to proceed on completing this module or if you need to
ask your facilitator or your teacher’s assistance for better understanding of the
lesson. At the end of each module, you need to answer the post-test to self-check
your learning. Answer keys are provided for each activity and test. We trust that you
will be honest in using these.
In addition to the material in the main text, Notes to the Teacher are also provided
to our facilitators and parents for strategies and reminders on how they can best
help you on your home-based learning.
Please use this module with care. Do not put unnecessary marks on any part of this
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If you have any questions in using this SLM or any difficulty in answering the tasks in
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Thank you.

i NegOr_Q3_Business Finance12_Module
NegOr_Q3_Business 4_v2
Finance12_Module 4_v2
 I

This module was designed to provide you with fun and meaningful opportunities for guided
and independent learning at our own pace and time. You will be enabled to process the contents of
the learning resource while being an active learner.

The module is intended for you to illustrate the formula and format for the preparation of
budgets and projected financial statements and the tools in managing cash, receivables, and
inventory

1 NegOr_Q3_Business Finance12_Module 4_v2

 I

Pre-assessment
Fill-in the blank: Read each statement or question below carefully and fill in the blank(s) with the
correct answer using the terms found in the box.

Production budget Capital Collateral

Capacity Sales budget Inventory Management
Net cash flow Cash budget Cash
Cash Disbursement Cash Receipts Aging of receivables
Credit management Official Receipts
Accounts receivable management

1. _________ is the most liquid asset.

2. Cash collections are supported by _________________ which are summarized in a daily
collection report.
3. The ____________ provides information regarding the company’s expected cash receipts
and disbursements over a given period.
4. _____________ include all of a firm’s inflows of cash in a given financial period.
5. _____________ include all outlays of cash by the firm during a given financial period.
6. The firm’s ______________ is found by subtracting the cash disbursements from cash
receipts in each period.
7. ___________________ incorporates is all about ensuring that customers pay their
invoices.
8. ________________ strategically defines the quality of account receivables collection.
9. ___________ provides information regarding the number of units that should be produced
over a given accounting period based on expected sales and targeted level of ending
inventories.
10. ___________ is a customer’s ability to generate cash flows.
11. ___________ is a security pledged for payment of the loan.
12. ___________ is a customer’s financial resources.
13. ___________ provides an estimate of the volume of goods and services that a company
proposes to sell in a future period.
14. ___________ is also a control measure to determine the amount of receivables that are
still outstanding and past due.
15. ___________________ involves the formulation and administration of plans and policies
to efficiently and satisfactorily meet production and merchandising requirements and
minimize costs relative to inventories.

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 ’s In

One the processes in financial planning is to establish a valuation system for

monitoring and controlling. And one of the processes in financial planning is the preparation
of a budget.

1. Now, what exactly is a budget?

___________________________________________________________________________
_____________________________________________________________________
1. What is the importance of a budget?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
2. What will happen if the budget is not met?
_____________________________________________________________________
_____________________________________________________________________
___________________________________________________________

’s New

Financial planning is a very important task, as it helps in the reduction of uncertainties

which can be a hindrance to growth of the company. This also helps in ensuring stability and
profitability in concern.

Now talking about planning, this can be good as long as all the details in the plans are
implemented, however failing to meet the plans is equivalent to failure if the reasons for not
meeting such plans can be justified especially when the reasons are fortuitous in nature and are
beyond the control of the management.

Which is why according to Cayanan (2015), “Measuring actual performance vis a vis the
plans even at the early start of the year allows the management to assess the company’s
performance and come up with remedial actions if warranted.”

Now in this lesson, we will identify all of the processes needed in the preparation of
financial planning and we will be able to monitor, control and formulate remedial actions based on
the performance of the company using several tools used in financial planning.

3 NegOr_Q3_Business Finance12_Module 4_v2

 is It

Tools Used in Managing Cash, Receivables and Inventory

Here are also tools used in financial planning which concentrates on managing cash,
receivables and inventory:

Cash Budget

The cash budget provides information regarding the company’s expected cash receipts and
disbursements over a given period.

It is useful for identifying future funding requirements or excess cash within a given period.
This allows managers to find possible sources of financing if the cash budget shows cash shortage
or identify appropriate tenors for money market placements for excess cash.

Normally, a cash budget is prepared for a one-year period broken down into smaller intervals
like months. This allows managers to see the seasonality of the business which affects the cash
flows (TG Business Finance, 185).

Table 1. Sample format of a cash budget.

Regine’s Industries
Cash Budget
For the months of October, November, and December 2015
October November December
Cash Receipts xxx xxx xxx
Less: Cash Disbursements (xxx) (xxx) (xxx)
Net Cash Flows xxx xxx xxx
Add: Beginning Cash Balance xxx xxx xxx
Ending Cash xxx xxx xxx
Less: Minimum cash balance (xxx) (xxx) (xxx)
Cumulative financing requirement (if xxx xxx xxx
negative) or Cumulative excess cash balance
(if positive)

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Parts of a Cash Budget:

A. Cash Receipts - include all of a firm’s inflows of cash in a given financial period. The most
common components of cash receipts are cash sales, collections of accounts receivable, and other
cash receipts (TG Business Finance, 188).
Table 2. Sample Cash Receipts.
Forecasted sales ₱100,000 ₱200,000 ₱400,000 ₱300,000 ₱200,000
August September October November December
Cash Sales (20%) 20,000 40,000 80,000 60,000 40,000
Collection of AR
1st month (50%) 50,000 100,000 200,000 150,000
2nd month (30%) 30,000 60,000 120,000
Other cash receipts 30,000
TOTAL CASH ₱20,000 ₱90,000 ₱210,000 ₱320,000 ₱340,000
RECEIPTS

100,000 x 20% 100,000 x 50% 100,000 x 30%

= 20,000 = 50,000 = 30,000

B. Cash Disbursements - include all outlays of cash by the firm during a given financial period.
The most common cash disbursements are:
• Cash purchases
• Purchasing fixed assets
• Payments of accounts payable
• Interest payments
• Rent (and lease) payments
• Cash dividend payments
• Wages and salaries
• Principal payments (loans)
• Tax

• It is important to recognize that depreciation and other noncash charges are not included in the
cash budget, because they merely represent a scheduled write-off of an earlier cash outflow (TG
Business Finance, 189).

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Table 3. Sample Cash disbursement.
Forecasted purchases ₱70,000 ₱140,000 ₱280,000 ₱210,000 ₱140,000
(70%)
August September October November December
Cash Purchases (10%) ₱ 7,000 ₱ 14,000 ₱ 28,000 ₱ 21,000 ₱ 14,000
Payment of AP
1st month (70%) 49,000 98,000 196,000 147,000
2nd month (20%) 14,000 28,000 56,000
Total Cash Purchases 7,000 63,000 140,000 245,000 217,000
Rent 5,000 5,000 5,000
Wages and Salaries 48,000 38,000 28,000
Tax 25,000
Machinery purchase 130,000
Interest 10,000
Total Cash ₱ 7,000 ₱ 63,000 ₱ 193,000 ₱ 418,000 ₱ 285,000
Disbursement

C. Net Cash Flow, Ending Cash, Financing, and Excess cash

The firm’s net cash flow is found by subtracting the cash disbursements from cash
receipts in each period. Then we add beginning cash to the net cash flow to determine the ending
cash for each period. Finally, we subtract the desired minimum cash balance from ending cash to
find the required total financing or the excess cash balance. If the computed amount is negative, the
company needs financing. Otherwise, the company has excess cash.
The cash budget is part of planning. It helps managers anticipate future funding
requirements in order to obtain proper financing even before the need arises. This will help them
avoid usurious rates. On the other hand, if the company has excess cash, managers are able identify
the investment instruments that will maximize the returns on the excess cash (TG Business Finance
190).

Illustrative Example for the Cash Budget:

Given the two illustrative examples, create a cash budget showing the net cash flow, ending
cash balance, and determine the cumulative financing requirement or excess cash for the months of
October, November and December. At the end of September, Regine’s cash balance was
PHP50,000 and its notes payable and marketable securities equaled PHP 0. The company wishes to
maintain a PHP25,000 cash balance reserved for unexpected needs.

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Table 4. Sample Cash Budget based on the given cash receipts and cash disbursement.
REGINE’S INDUSTRIES
Cash Budget
For the months of October, November, and December 2015
October November December
Cash Receipts ₱ 210,000 ₱ 320,000 ₱ 340,000
Less: Cash Disbursements (193,000) (418,000) (285,000)
Net Cash Flows 17,000 (98,000) 55,000
Add: Beginning Cash Balance 50,000 67,000 (31,000)
Ending Cash 67,000 (31,000) 24,000
Less: Minimum cash balance (25,000) (25,000) (25,000)

Cumulative financing requirement (if negative) or ₱ 42,000 (₱ 56,000) (₱ 1,000)

Cumulative excess cash balance (if positive)

Note: Take note that in November and December we have a negative total of 56,000 and 1,000
respectively, which means that we will need an additional capital to resolve the cash shortage.

Accounts Receivable Management

Accounts receivable management is the process of ensuring that customers pay their dues
on time. It helps the businesses to prevent themselves from running out of working capital at any
point of time. It also prevents overdue payment or non-payment of the pending amounts of the
customers. It builds the businesses financial and liquidity position. A good receivable management
contributes to the profitability by reducing the risk of any bad debts. Management is not only about
reminding the customers and collecting the money on time. It also involves identifying the reasons
for such delays and finding a solution to those issues (Cleartax.in, 2021). An Account receivable
management process involves the following:

a. Use Credit management – one of the tools used to identify the credibility of the accounts
receivable is to use credit management in which its purpose is to identify the quality of
accounts receivable collection. In this process a Credit rating used in which it enables us to
identify the paying ability of the customers which shall be reviewed before agreeing to any
terms and conditions. The collectability of accounts receivables depends largely on the
quality of customers. The quality of customers depends on the standards or credit policies
set up and used by an organization.
Credit policies are an integral part of the credit evaluation and there are 5C’s used in credit
evaluation. These are:
Character –the willingness of the borrower to repay the loan
Capacity – a customer’s ability to generate cash flows
Collateral – security pledged for payment of the loan
Capital – a customer’s financial resources
Condition – current economic or business conditions

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 b. Continuously monitoring any risk of non-payment or delay in receiving the payments. In
this process follow-ups are a very important task to reach and give reminders to customers
who fails to pay on time. These follow-ups can also serve as the management’s way of
validating if the contact details given by customers are still valid and if the customers still
occupy the same office.
c. Aging of receivables is also a control measure to determine the amount of receivables that
are still outstanding and past due.

Table 5. Sample of Aging of receivables.

Current ₱ 60 million
1 - 30 day past due 20 million
31 - 60 day past due 10 million
61 - 90 day past due 3 million
Over 90 days past due 7 million
Total ₱ 100 million

Accounts which have been past due for more than 90 days have higher probability to
default. The aging of receivables is useful in determining the allowance for doubtful accounts (TG
Business Finance, 194).

Inventory Management

Inventory management involves the formulation and administration of plans and policies
to efficiently and satisfactorily meet production and merchandising requirements and minimize
costs relative to inventories. Effective inventory management becomes critical when the nature of
the products is either perishable (e.g., fruits, vegetables), fragile (e.g., glasses), or toxic (e.g.,
bleaching agent). Proper inventory management involves the determination of reasonable levels of
inventories considering the size and nature of business (TG Business Finance, 195).

Maintaining too much inventories has costs such as carrying or holding costs, possible
obsolescence or spoilage. On the other hand, too low inventory can result to stockout and eventually
lost sales.

Here are internal control procedures and tools considered in inventory management:
A. Inventory In A Manufacturing Company
In a manufacturing company, there are three types of inventory:
▪ Raw materials – these are purchased materials not yet put into production.
▪ Work in process – these are goods and labor put into production but not yet
finished.
▪ Finished goods – these are goods put into production and finished. These are ready
to be sold.

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 B. The ABC Analysis
▪ One way to control inventory is to classify inventory into a classification system
called ABC Analysis.
▪ Inventories classified as “A” are high valued items which should be safeguarded the
most.
▪ B items, on the other hand, are average-cost items that should be safeguarded more
than C items but not as much as A items.
▪ While C items have low cost and is the least safeguarded.

Table 6. Inventory Class.

A B C
Money value High Medium Low
Quality of control Very strict Strict Not too strict
Inventory movement (flows Slow Relatively fast Fast

Table 7. Sample ABC analysis for a cell phone retail store.

Merchandise # of Items Price Amount Classification
Product A 10 1 ₱69,990 ₱69,990 A
Product B 10 1 ₱69,990 ₱69,990 A
Product C 30 2 26,990 53,980 A
Product C 20 4 18,990 56,970 A
Product C 10 5 11,990 59,950 B
Product C 10 7 6,990 48,930 B
Product D 20 9 4,890 44,010 B
Product E 10 Basic phone 10 990 9,900 C
Headset 10 179 1,790 C

Based on the groupings that we have Classification A requires a place or part of your store that is
very safe and well safeguarded. Classification B can be place where it is easily accessible by the
customers since these products are highly sellable. Classification C can be placed where it can be
hanged and placed in the shelves since these are low cost and is the least safeguarded.

Preparation of Budgets
Here are the following types of budgets to be prepared in financial planning:

Sales Budget
A sales budget provides an estimate of the volume of goods and services that a company
proposes to sell in a future period. It is usually made for the following year. Most sales budgets
include monthly and quarterly figures as well. Here is an example:

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Table 8. Sample sales budget.
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
Forecasted unit ₱ 5,500 ₱ 6,000 ₱ 7,000 ₱ 8,000 ₱ 26,500
sales
x Price per unit 10 10 11 11 42
Total gross sales 55,000 60,000 77,000 88,000 280,000
- Sales discounts 1,100 1,200 1,540 1,760 5,600
& allowances
Total Net Sales ₱ 53,900 ₱ 58,800 ₱ 75,460 ₱ 86,240 ₱ 274,400

Production Budget

A production budget provides information regarding the number of units that should be
produced over a given accounting period based on expected sales and targeted level of ending
inventories.

It is computed as follows:

Required production in units = Expected Sales + Target Ending Inventories - Beginning

Inventories

Table 9. Sample production budget.

A Company
Production Budget (In Units)
For the Year Ending December 31, 2015
Month
Jan Feb Mar April May
Projected Sales 2,000 2,200 2,500 2,800 3,000
Target level of ending 100 100 100 100 100
inventories
Total 2,100 2,300 2,600 2,900 3,100
Less: beginning 50 100 100 100 100
inventories
Required production 2,050 2,200 2,500 2,800 3,000

Note: Ending inventory of current period is beginning inventory of next period.

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Projected Financial Statements

Projected financial statements is a tool of the company to set an overall goal of what the
company’s performance and position will be for and as of the end of the year. It sets targets to
control and monitor the activities of the company.

Like budgeting, the projected financial statements are essential task to predict the operations
performance in a specific period of time. With this, we will be able to control and monitor
company’s activities to avoid risk and failures. This is process is also called financial forecasting.

The following reports may be forecasted:

• Projected Statement of Comprehensive Income – is a forecast of how profitable a
company will be in the future. It could be month, quarter or a year.
• Projected Statement of Financial Position – is a statement which incorporate current
expectations to arrive at a financial picture that management believes it can attain as of a
future date. This can be presented in a month, quarter or a year.
• Projected Statement of Cash Flows – is a statement which shows the list of all the
expected cash inflows and outflows for different of time which can also be a month, quarter
or a year .

Table 10. Sample Projected Statement of Comprehensive Income

B Company
Projected Statement of Comprehensive Income
For the year ended December 31
2014 2015 2016 2017 2018
Net Sales ₱5,250,000 ₱4,770,000 ₱4,310,000 ₱3,910,000 ₱3,547,000
Less: Cost of Sales 4,305,000 3,959,100 3,663,500 3,128,000 2,979,480
Gross Profit 945,000 810,900 646,500 782,000 567,520
Less: Operating Expenses 314,750 297,890 246,231 221,500 217,538
Operating Income 630,250 513,010 400,269 560,500 349,982
Less: Interest Expense 250,000 250,000 250,000 450,000 300,000
Income before taxes 380,250 263,010 150,269 110,500 49,982
Less: Taxes 114,075 78,903 45,078 33,150 14,995
Net income ₱ 266,175 ₱ 184,107 ₱ 105,191 ₱ 77,350 ₱ 34,987

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Table 11. Sample Projected Statement of Financial Position

JM Photocopying Center
Projected Statement of Financial Position
As of Jan. 1, 2021
Account Title January February
Assets
Cash ₱16,500.00 ₱10,000.00
Accounts Receivable 7,500.00 5,000.00
Less: Allowance for doubtful
(150) (150)
accounts
Note Receivable 5,527.50 4,000.00
Unused Supplies 3,000.00 3,000.00
Prepaid rent 5,000.00 5,000.00
Photocopying Equipment 30,000.00 30,000.00
Accumulated Depreciation -
(450) (450)
Photocopying Equipment
Furniture and Fixtures 5,000.00 5,000.00
Less: Accumulated Depreciation -
(75) (75)
Furniture & Fixtures
Total Assets ₱71,852.50 ₱61,325.00
Liabilities & Capital
Accounts payable ₱2,500.00 ₱2,000.00
Loan payable 50,000.00 40,000.00
Notes payable 5,000.00 5,000.00
Salaries Payable 816.67 816.67
Unearned Photocopying Revenues 1,800.00 1,800.00
Victoria, Capital 11,735.83 11,735.83
Total Liabilities & Capital ₱71,852.50 ₱61,352.50

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Table 12. Sample Projected Statement of Cash Flows.
January February March

Cash Flows From Operating Activities

Sale of goods ₱ 150,000.00 ₱ 200,000.00 ₱ 300,000.00

Purchase of goods -100,000.00 -150,000.00 -200,000.00
Paid utilities -30,000.00 -30,000.00 -30,000.00
Paid rent -10,000.00 -10,000.00 -10,000.00
Net Cash generated by Operating Activities 10,000.00 10,000.00 60,000.00
Cash Flows From Investing Activities

Sold equipment 100,000.00 50,000.00 50,000.00

Cash flow generated from investing activity 100,000.00 50,000.00 50,000.00

Cash Flows From Financing Activities

Withdrawals by owner -10,000.00 -10,000.00 -10,000.00

Cash flow from used in Financing Activities -10,000.00 -10,000.00 -10,000.00
Net change in cash
Cash, Beginning 50,000.00 50,000.00 50,000.00
Cash, End ₱ 150,000.00 ₱ 100,000.00 ₱ 150,000.00

We can see that there is a bit of similarities of what a cash flow statement and a cash budget
have. The only difference is that Cash flow statement is much more detailed in with regards to all
cash in and cash out in the company’s operations. While a cash budget only shows in the total
balances in the cash receipts and cash disbursement. As for purposes, cash budget shows the ending
cash balance, the needed maintaining balance, and the excess / shortage of cash for a period, while
cash flow statement shows the detailed cash in and cash out for the three activities of the company.
The operating activities, investing activities and financing activities.

13 NegOr_Q3_Business Finance12_Module 4_v2

 ’s More

Task 1
Directions: Prepare a Cash budget for the month of January, February and March year 2021 for
Jelian’s Enterprise. Use the given items and the table for your answers:

1. Cash Receipts are 10,000 for January, 11,260 for February and 3,800 for March.
2. Cash disbursement are 7,000 for January, 10,880 for February and 23,500 for March.
3. Beginning Balance for Month of January is 7,000.
4. Target cash balance or minimum balance for each month is 10,000.

Task 2
Based on the following transactions of Jelian’s Merchandise, you are task to manage their Accounts
receivables by using the Aging of Receivables for you to have control measure to determine the
amount of receivables that are still outstanding and past due.

At the end of the month of January 2021 here are the following Accounts receivable waiting for
payment.
1. September 24, 2020 - ₱ 7,090
2. October 1, 2020 - 2,289
3. December 13, 2020 - 3,982
4. August 6, 2020 - 4,976
5. January 8, 2021 - 8,095
Requirement:
1. Prepare aging of receivables, use the table below.
2. Identify the amount of receivables that are past due which will be our basis for our
allowance for doubtful accounts.

Task 3
Prepare a projected statement of comprehensive income for ABC Company based on the following
data given below.

January February March

Net Sales ₱2,499,950 ₱2,999,940 ₱3,249,935
Cost of Sales 1,749,965 2,099,958 2,274,955
Operating Expenses 246,231 221,500 217,538
Interest Expense 250,000 240,000 230,000
Taxes 30,450 52,618 63,293

14 NegOr_Q3_Business Finance12_Module 4_v2

 I Have Learned

Now that we have finished our lesson, let us review the topics we have learned. Provide what is
being asked in each item and write your answer in your notebook.

1. Enumerate the parts of a cash budget?

__________________, _____________________, _________________

2. Aging of accounts receivable and credit management are important tools used in
____________________.

3. ABC Analysis is used in ________________.

4. Production budget calculated in the formula?

____________________________________________________________________

5. Why is budgeting and financial forecasting important?

____________________________________________.

I Can Do

Task 4

Problem Solving:

▪ Based on your cash budget prepared in Task 1, identify whether Jelian’s Enterprise is in
need of cash for the month of January, February and March, which requires additional
financing or either have an excess cash which requires to invest more. Explain
thoroughly (20 points)

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 The rubrics below will be used to identify your score for this performance task.
Level of General Approach Comprehension
Achievement
Exemplary •Addresses the problem. •Demonstrates an accurate and complete
(20 pts quizzes) •States a relevant, justifiable understanding of the problem.
answer. •Backs conclusions with data and
•Presents arguments in a warrants.
logical order. •Uses 2 or more ideas, examples and/or
arguments that support the answer.
Adequate •Does not address the question •Demonstrates accurate but only
(15 pts quizzes) explicitly, although does so adequate understanding of question
tangentially. because does not back conclusions with
•States a relevant and warrants and data.
justifiable answer. •Uses only one idea to support the
•Presents arguments in a answer.
logical order. •Less thorough than above.
Needs •Does not address the problem. •Does not demonstrate accurate
Improvement •States no relevant answers. understanding of the question.
(10 pts quizzes) •Indicates misconceptions. •Does not provide evidence to support
•Is not clearly or logically their answer to the problem.
organized.
No answer (0 pts)

16 NegOr_Q3_Business Finance12_Module 4_v2

I. Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
1. The _________ inventory consists of all items currently in the production process.
A. raw materials C. finished goods
B. work-in-process D. Capital goods

2. The _________ inventory consists of items that have been produced but not yet sold.
A. raw materials C. finished goods
B. work-in-process D. capital goods

3. The three basic types of inventory are all of the following EXCEPT.
A. raw materials C. finished goods
B. work-in-process D. capital goods

4. The _________ inventory contains the basic components of the production process.
A. raw materials C. finished goods
B. work-in-process D. capital goods

5. It is the most liquid asset.

A. Cash C. Capital
B. Accounts receivable D. None of these are correct

6. Cash collections are supported by _________________ which are summarized in a daily

collection report.
A. Cash receipts C. Cash disbursement
B. Official receipts D. None of these are correct

7. If your cash budget has a negative total, choose among the statements below on what course
of action should you make.
A. If it is negative it means that there is an excess cash which requires additional investment
B. If it is negative it means that there is a shortage which requires additional cash
C. If it is negative it means it means there is a surplus which requires a cumulative financing
requirement
D. If it is negative it means it means there is a shortage which requires a cumulative
investment
8. The ____________ provides information regarding the company’s expected cash receipts and
disbursements over a given period.
A. Cash disbursement C. Cash budget
B. Cash receipts D. None of these are correct

17 NegOr_Q3_Business Finance12_Module 4_v2

 9. _____________ include all of a firm’s inflows of cash in a given financial period.
A. Cash disbursement C. Cash budget
B. Cash receipts D. None of these are correct

10. _____________ include all outlays of cash by the firm during a given financial period.
A. Cash disbursement C. Cash budget
B. Cash receipts D. None of these are correct

11. The firm’s ______________ is found by subtracting the cash disbursements from cash
receipts in each period.
A. Net sales C. Net Cash flow
B. Net Cash receipts D. None of these are correct

12. ___________________ is all about ensuring that customers pay their invoices.
A. Credit management C. Inventory management
B.Accounts receivable management D. None of these are correct

13. ________________ strategically defines the quality of account receivables collection.

A. Aging of inventory C. Inventory management
B. Accounts receivable management D. Aging of receivables

14. ___________ is the willingness of the borrower to repay the loan.

A. Character C. Collateral
B. Capacity D. Condition

15. ___________ is the process to predict the operations performance in a specific period of
time to avoid risk and failure.
A. Budgeting C. Financial forecasting
B. Working capital management D. None of these are correct

Direction: Write True if the statement is correct and False if you think the statement is wrong.
Write your answers in a clean sheet of paper.

1. One of the most important type of budget in financial planning is cash budget because
most of its contents are found in the financial statements particularly sales and expenses.

18 NegOr_Q3_Business Finance12_Module 4_v2

2. Production budget provides information regarding the number of units that should be
produced over a given accounting period.

3. One of the purposes of production budget is to identify how may units that needs to be
produced and to know the amount of units that needs to be left in the inventory.

4. Production budget can be computed using the formula, Expected sales plus Target ending
inventory minus Beginning inventory.

5. Cash budget is a budget that provides the number of units that should be produced over a
given period of time.

19 NegOr_Q3_Business Finance12_Module 4_v2

NegOr_Q3_Business Finance12_Module 4_v2 20
What’s More
Task 1. Prepare cash budget.
Jelian’s Enterprise
Cash Budget
For the Months of January, February and March 2021
January February March
Cash Receipts 10,000 11,260 3,800
Less: Cash Disbursements 7,000 10,880 23,500
Net Cash Flows 3,000 380 (19,700)
Beginning Balance 7,000 0 0
Ending Cash Balance 10,000 380 (19,700)
Less: Minimum Balance (10,000) (10,000) (10,000)
Cumulative Financing 0 (9,620) (29,700)
requirement or excess cash
Task 2
1. Aging of receivables.
Current
1 - 30 day past due ₱ 8,095
61 - 90 day past due 3,982
Over 90 days past due 14,355
Total ₱ 26,432
2. Note that ₱ 14,355 out of P26,432 total receivables will be used as basis in
computing the allowance for doubtful accounts since it is already over 90days
past due and considered a default.
What I Know
1. Cash 6. Net cash flow 11. Collateral
2. Official receipt 7. Account receivable management 12. Capital
3. Cash Budget 8. Credit management 13. Sales Budget
4. Cash Receipts 9. Production Budget 14. Aging or receivables
5. Cash disbursements 10. Capacity 15. Inventory management
What’s In
Answers may vary.
NegOr_Q3_Business Finance12_Module 4_v2 21
Task 3. Answer
ABC Company
Projected Comprehensive Inscome
For the month of January, February and March
January February March
Net Sales ₱2,499,950 ₱2,999,940 ₱3,249,935
Less: Cost of Sales 1,749,965 2,099,958 2,274,955
Gross Profit ₱749,985 ₱899,982 ₱974,981
Less: Operating Expenses 246,231 221,500 217,538
Operating Income ₱503,754 ₱678,482 ₱757,443
Less: Interest Expense 250,000 240,000 230,000
Income before taxes 253,754 438,482 527,443
Less: Taxes 30,450 52,618 63,293
Net income ₱223,304 ₱385,864 ₱464,149
Task 3
Based on the cash budget of Jelian’s Enterprise there is shortage of cash for
the month February of ₱ 9,260 and ₱ 29,700 for the month of March with an overall
amount of ₱ 38,960. The enterprise must seek new sources of finances for these
shortages so that operation will continue without hindrance.
Assessment
I. Multiple Choice
1. b 6. b 11. c
2. c 7. b 12. b
3. d 8. c 13. d
4. a 9. b 14. a
5. a 10. a 15. c
Additional Activities
1. F 4. T
2. T 5. F
3. T
Glossary
Aging of receivables - is a control measure to determine the amount of receivables that are still
outstanding and past due.

Cash budget - provides information regarding the company’s expected cash receipts and
disbursements over a given period.

Cash Disbursements - include all outlays of cash by the firm during a given financial period.

Cash Receipts - include all of a firm’s inflows of cash in a given financial period.

Credit management - one of the tools used to identify the credibility of the accounts receivable is
to use credit management in which its purpose is to identify the quality of accounts receivable
collection.

Credit rating – is used to identify the paying ability of the customers which shall be reviewed
before agreeing to any terms and conditions.

Inventory management - involves in the formulation and administration of plans and policies to
efficiently and satisfactorily meet production and merchandising requirements and minimize costs
relative to inventories.

Net cash flow - is found by subtracting the cash disbursements from cash receipts in each period.

22 NegOr_Q3_Business Finance12_Module 4_v2

References

Department of Education. Business Finance-Grade 12: Teacher’ Guide 1st ed. 2016, 184-200.

Gitman, L. 1976. Principles of managerial finance. New York: Harper & Row.

Cleartax.in. 2021. Accounts Receivable – Meaning and its Management. Retrieved at:
[https://bit.ly/3FaHDjx.] Accessed on January 26, 2021.

Agamata, F. 2014. Management Services.

Gitman, L. & Joehnk, M. 1981. Fundamentals of investing. New York: Harper & Row.

Horngren, C. 1972. Cost accounting; a managerial emphasis. Englewood Cliffs, N.J.: Prentice-
Hall.

Roque, R. 1990. Reviewer in Management Advisory Services. Roque Press, Inc.

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