Plan your sales and expenses and let Reach Reporting automatically project Balance Sheet and Cash Flow positions, without the need for complicated formulas on your end.
Since AR/ AP/ Inventory calculations impact your cash balance, they should be an integral part of planning. First, plan your sales and expenses and let Reach reporting automatically calculate projected Balance sheet and Cash Flow positions, without the need for complicated formulas on your end.
Accounts Receivable (AR) on the Balance sheet represents money not collected from customers for invoiced sales. Similarly, Accounts Payable (AP) represents money you owe to vendors, for unpaid bills. Both AR and AP can be planned based on how quickly you expect to collect an invoice or pay a bill. Inventory calculations look at how efficiently your business utilizes purchased inventory.
For example, if you make a sale of 1,000 and have payment terms set to 60 days, the invoiced 1,000 will stay unpaid for 2 months and therefore in the AR balance for 2 months. After 2 months, when the invoice is paid for, the AR balance will go down by 1,000 and your cash inflow will go up by 1,000. Same for AP, the unpaid bills increase the AP balance but once they are paid for, they are shown as a cash outflow on the Cash Flow statement.
Configuring AR/ AP/ Inventory calculations within Reach Reporting:
Step 1. Go to the Settings gear icon located at the top.
Step 2. Select the AR/ AP/ Inventory calculation you wish to configure and click the “Enable calculations” checkbox. Map the desired Balance sheet account. You will have the option to select an AR Account directly from your Chart of Accounts. Then input % of cash sales, if you have any, and the average number of days for collecting invoices, paying bills, or turning inventory into sales or finished products. Next choose all Profit & Loss accounts from your Chart of Accounts that will contribute to AR/ AP/ Inventory calculations on the Balance Sheet and related Cash Flow projections.
Once you enable AR/ AP/ Inventory calculation the corresponding rows on the Balance Sheet are greyed out and locked.
Hover over a cell to display calculations for both Existing and New Balances. The Existing Balance is calculated using turnover ratios starting from the last referenced month. For budget that is the last month of the prior year and for forecast that is the last month with actuals. Turnover ratios measure how efficiently your business turns sales and expenses, used to generate sales, into cash by calculating the number of times the turnover happens over a given period. In the below example of 60 days payment terms, 50% of invoices get collected each month. Consequently the Existing AR balance will go down to zero in 2 months since all unpaid invoices should be paid within those 60 days. The New AR Balance is also calculated from the number of days set for collecting current month invoices, paying current month bills, or turning current month inventory into sales or finished products. In 60 days payment terms example the current month sales will be collected and transformed into cash in 2 months and in the meantime they will stay in the AR balance.