Define cash inflows and cash outflows


Joseph Pharmacy had sales of $25,000 in December and $30,000 in January. The company expects sales of $20,000 in February and $40,000 in both March and April, and $30,000 in May.  The company has no other source of cash inflows. Half of the sales are paid for with cash. Twenty-five percent are paid for in each of the two months following the sale.


Joseph Pharmacy has the following expenses: (show all of your work)

  • Monthly rent of $1,500
  • Wages of $5,000 each month
  • Purchases
    • o 50% of next month’s sales
    • o Cash Outlay
      • 20% in month purchased
      • 80% in following month


From the information provided:


  1. Calculate the projected Cash Receipts for the three months of February, March, and April (Tables have been set up for you)
Sales forecast December January February March April
Cash Sales          
Collection of AR:

Lagged 1 Month

Lagged 2 Months









Other Cash Receipts          
Total Cash Receipts          



  1. Calculate the projected Cash Disbursements for the same months

A Schedule of Projected Cash Disbursements for Joseph Pharmacy

Sales December











(50% of last month’s sales)











Rent payments            


  1.  Indicate what the total cash balance would be at the end of these three months if the cash balance at the beginning of February was $1,500.
February Cash balance            
Total Cash Receipts December










Cash Disbursements            
Balance from Feb – April            
  1. Define cash inflows and cash outflows
  2. If I have a budget where expected gross receipts are what is obtained in #1 and my expected cash disbursements are what is obtained in #2.  What can you tell me about the cash balance (obtained in #3) if you were doing a variance analysis?
  3. What is a cash budget, a flexible budget, CAPEX, and OPEX?
  4. How often do you use some form of budgeting?  Why?


  1. If the business world is allowed to explain away their variances to budget, why is budgeting so important

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