Cash Flow Forecast - Unit 15

confoosed

This is probably a really simple question, but how are bad debts and depreciation treated in a Cash Flow Forecast. I didn't think depreciation was included but apparently it is, same for bad debts.
Hopefully someone can help. Thanks in advance. :confused1:

[Deleted User]

I don’t believe that they are included in cash flow forecasts as they are worked out at ETB stage. Technically they are not cash expenses either but are put through the books at year end under the accruals concept.

I stand to be corrected if I am wrong. :001_smile:

Gianni

An element of bad debts can be put through. If you make a provision for bad debts based on a percentage you would put this percentage on your cash flow forecast. For example:

Sales of 100,000 in January
70% pay 30 days after month end of invoice (70,000)
28% the month after (28,000)
2% never pay and are therefore bad debts (2,000)

Therefore you would never receive the 2% cash (2,000) and should make an allowance for this.

Depreciation is a non cash expense and therefore should not be included.

columbia

Well explained gianni!

confoosed

Thanks Gianni

[Deleted User]

I stand corrected. :crying:

SandyHood

Don Juan
You were right, and so was Gianni.
No cash changes hands, so bad debts are not shown in a cash budget.

[Deleted User]

Thanks :laugh: