Consider Your Cash Disbursements

There are many types of disbursements a company may make in a month, such as payroll, inventory and supplies purchases and overhead purchases such as insurance and bank loan payments.   It is important to follow the principle that there should not be any averaging or allocating of any purchases.  Each month must show only the cash you expect to pay out that month.  For example, if you plan to pay your supplier invoices in 30 days, the cash payouts for January’s purchases would be shown in February. If you can obtain trade credit for longer terms, then cash outlays will appear two or even three months after the stock purchase has been received and invoiced.

An example of a different type of expense is your insurance expenditure. Your commercial insurance premium may be $2,400 annually.  This would be treated as a $200 monthly expense for accrual accounting purposes. But the cash flow forecast would not be the same. The cash flow forecast would record when and how much would be paid.  If the premium is to be paid in two instalments, $1,200 in January and $1,200 in July, then that is how it would be entered on the cash flow worksheet.

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