Visual Cash Focus - User Tip 16

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1 Visual Cash Focus - User Tip 16 Cash Flow Profiles What are Cash Flow profiles and how do I modify them? Background Cash Focus uses a traditional double entry accounting engine to create profit & loss, balance sheet and cash flow results for any number of profit centers, entities and all types of organisation. Cash Flow profiles are the double entry rules used to create the results. They specify the balance sheet account that the budget or forecast data is to be accrued to and then in % terms how the accrual is to be collected or paid (if at all) and into which bank account. The Cash Flow part of the assumption can be turned off to accrue expenses, amortise prepayments and transfer accumulated expenses or revenues to any balance sheet account. By customizing the default profiles to pay or receive the period following and then creating new rules for exceptions to this, the number of rules can be minimized whilst incorporating any industry methodology into the model. Usually the Cash Flow profile assumptions are set up as the data is entered but they should all be reviewed again after the profit & loss budget and opening balance sheet have been finalised and during the monthly rollover process. How do Cash Flow Profiles work? When activated Cash Focus looks at the data, the timing ticks and profiles used for each account line. The first set of accrual journals create the P&L and Balance Sheet and depending on whether there is a timing tick in the adjacent budget window and a second set of journals reverse the Balance Sheet accruals to the specified bank account. This process creates the Profit & Loss, Balance Sheet and cash Flows simultaneously. The objective of Cash Focus is to create your ledger results in advance following the same methodology used to record the transaction history. Cash Flow profiles detail your organisations transaction methodology so that any actual to budget variances are due to differing levels of activity rather than compromises in accounting treatment. Suggested Solution How to create a new Cash Flow Profile Whenever a new account line is created a default cash flow profile and timing marks are assigned to it for each period. Here we see a Revenue account software Sales with the default Sales Profile (the default profiles contain the word Profile.

2 Right clicking the profile and choosing View/Edit opens the profile Note that Cash Flows can be collected or paid in the same period as the budget period 0 or before and after i.e. period -1,-2 and 1 and 2 etc. The 100% assumption can be split into many lines Clicking Show More reveals the balance sheet accrual account and default bank account. If required these can be customized to link to any other balance sheet or bank account.

3 Tip - All default profiles should be edited to read 100% paid or collected the period following. New profiles should only be created for exceptions to the default rules. New profiles should use the name of the account it relates to as the profile description. Cash Flow profiles can be split by % over any number of periods and be collected/paid in advance or arrears. Each % split can be linked to different balance sheet account. Use a big add number like period 99 to make a part or all of the profile Non Cash Here is an example of software development costs being transferred to a WIP Software Development account on the balance sheet. Note the 99 timing.

4 EXAMPLE Profiles Wages Wages are an exception to the default rule of 100% paid the period following. Here wages are split across three balance sheet accounts including Accrued Expenses, PAYE and Holiday pay. FBT Here we see FBT being accrued to the calendar quarter then being paid the month following. FBT is being accrued to Accrued Expenses in the profile.

5 Where as Bank Interest, Bank Fees and Rent are paid in the same month, create new profiles for each with a timing of zero. ACC Levies ACC levies are calculated as being variable on the 3 Wage accounts. In this example we have assumed that there is only one payment due around August/September of each year which represents a wash up of the year before and a prepayment. In this example a Debit to the ACC expense and a Credit to Accrued Expenses is made every month. In Period 2 the total of the accrual plus GST Credits Bank (and the Cash Flow report) and Debits the account Accrued Expenses. Insurance - Insurance is prepaid 11 months in Advance Here we see the expense allocated across all periods and a single timing tick against period 12. Instead of the default A/P the expense is accrued to the prepayment account. The effect of the tick is to accrue $4,800 to the prepayment account in $400 increments. The effect of the timing assumption -11 is to pay the cash flow 11 periods in advance. This puts a debit of $4,800 into the prepayment account. This prepayment is then amortised by the $400 increments down to zero by period 12. To get the GST correct we turn off the Auto GST function for this line and manually enter the amount of GST that can be claimed in the period of the of the advance payment.

6 All Profiles can be printed and reviewed from Reports Budget and Schedules

7 Here is how to read the Cash Flow assumption schedule. Revenues All revenues are collected 100% in the period following Direct Costs All Direct costs are paid 100% the month following Except for Developer Rent which is paid in the same period Developer Salaries which are paid 75% in the same period via accrued expenses and 25% PAYE is paid the period following Developer Costs are transferred (non Cash see the 99 stands out) to Software Development Costs Expenses All expense are paid the month following except for ACC which is paid 10 periods in advance Bad Debts are written off in the period recognised ( a provision would use a 99) Audit is paid 20% 6 periods before the year end (i.e. an interim audit) and the balance 2 periods after the year end. Tip Non Cash Expenses, accruals and transfers To budget a non cash expense there are two methods 1. Remove all the timing ticks 2. In the profile add a timing period reference of 99 (it s a large number that stands out on the Cash Flow profile report. Tip When reviewing the cash flow report look for and highlight the items that are not paid or received the month following (i.e. as per the default profiles). Items that are paid or received either within the month like wages, Rent, Bank fees etc, 2 monthly or 3 monthly like FBT, quarterly like Rates or by a combination or some other cash flow pattern. Once the account lines affected have been identified add new profiles for them under Accounts and Budgets.