Plan your sales and expenses, and let Reach Reporting automatically project Balance Sheet and Cash Flow positions, without needing complicated formulas.
Understanding AR, AP, and Inventory
Since AR/AP/Inventory calculations impact your cash balance, they should be an integral part of planning.
- Accounts Receivable (AR): This represents money not collected from customers for invoiced sales.
- Accounts Payable (AP): This represents money owed to vendors for unpaid bills.
Both AR and AP can be planned based on the speed of invoice collection or bill payment. Inventory calculations assess how efficiently your business utilizes purchased inventory.
Example: New Balance Projections
If you make a sale of $1,000 with a 60-day payment term, the invoiced $1,000 will remain unpaid and in the AR balance for 2 months. After the invoice is paid, the AR balance decreases by $1,000, and your cash inflow increases by $1,000. Similarly, unpaid bills increase the AP balance but once paid, they appear as a cash outflow on the Cash Flow statement.
Configuring AR/AP/Inventory Calculations in Reach Reporting
- Access Settings: Click the Settings gear icon at the top.
- Enable Calculations: Select the AR/AP/Inventory calculation you wish to configure and check the "Enable Calculations" box.
- Map Balance Sheet Accounts: You can select an account directly from your Chart of Accounts.
- Input Details: Input the percentage of cash sales and the average number of days for collecting invoices, paying bills, or turning inventory into sales or finished products.
- Map Profit & Loss Accounts: Choose all Income and Expense accounts from your Chart of Accounts that will contribute to AR/AP/Inventory calculations on the Balance Sheet and related Cash Flow projections.
Once AR/AP/Inventory calculations are enabled, the corresponding rows on the Balance Sheet are grayed out and locked. Hover over a cell to display calculations for both Existing and New Balances.
Existing vs New Balances
The Existing Balance (unpaid invoices and bills) is calculated using turnover ratios from the balance shown in the Reference column for the relevant Balance Sheet accounts. Similarly, the New Balance is derived by applying turnover ratios to the monthly values for Profit & Loss accounts mapped in AR/AP/Inventory configuration.
Existing Balance Reference Column
- Budget: Pulls reference values from the prior ending fiscal year.
- Forecast: Pulls reference values from the last month with actuals, depending on the Forecast month selected. When actuals are rolled forward, the corresponding values will replace the existing AR/AP/Inventory balances as a reference balance.
- Multi-Year: In advanced settings, choose the correct reference values that the Reference column should pull from (this should be a prior year budget or forecast). Ensure proper setup and refresh row drivers as needed.
Example: Existing vs New Balance
In the AR example with 60-day payment terms, half of the existing invoices are collected each month, which reduces the Existing AR balance to zero within 2 months, since all unpaid invoices should be paid within that period. The New AR Balance, coming from planned monthly sales on the P&L, will be collected and transformed into cash within 2 months and will remain in the AR balance during that time.
