Inventories position is to be presented. The year’s budget

Inventories

It
includes suppliers, raw materials, work in process, and finished goods are an
important part of virtually all business operations. Sales must be estimated
before the inventories can be established because optimal inventory levels are depend
on sales. Moreover, inventory management is very important due to the errors in
setting inventory levels lead to lost sales or excessive carrying costs. So,
firms use sophisticated computer systems to monitor their inventory holdings. (F.Brigham,
2011)

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Most
retailers use computers to keep track of each inventory item by size, shape,
and colour, and bar code information collected at checkout updates inventory
records. When computers shown the inventory decline to a certain level, the
computers will sends an order to the supplier’s computer, specifying exactly
what is needed. The computer will also report the movement of the inventories.
If the inventories are moving slowly, the computers will suggest a price cut to
lower inventory stock before the items become obsolete. (F.Brigham,
2011)

Supply Chain Management

Supply chain management (SCM) is the oversight of
materials, information, and finances as they move in a process from supplier to
manufacturer to wholesaler to retailer to consumer. Supply chain
management involves coordinating and integrating these flows both within and
among companies. The objective of the supply chain
management is to reduce the inventory effectively when the inventory is
available when needed. However, SCM has been a win-win situation, with
increases in value for manufacturers and suppliers.

Account Payable

When
firms generally make purchases from other firms on credit, the debts will be
recorded as the account payable. Account payable is the largest single category
of short-term liability, representing about 40% of the average corporation’s
current liabilities. This credit is a spontaneous source of financing in the
sense that arise the spontaneously from
ordinary business transactions. (F.Brigham, Core Concepts of
financial management, 2011)

There
are two types of trade credit:

ü  Free
trade credit is the trade credit that is obtained without a cost, and it
consists of all trade credit that is available without giving up discounts (F.Brigham,
Core Concepts of financial management, 2011).

ü  Costly
trade credit is any trade credit over the free trade credit. (F.Brigham, Core Concepts of financial management, 2011)

The
Cash Budget

The
primary forecasting tool is the cash budget. Firms need to forecast their cash
flows. If they are likely to need additional cash, they should line up their funds
well in advance. But then, if they are likely to generate surplus cash, they
should plan for its productive use (F.Brigham, Core concepts of
financial management, 2011). The
cash flow budget should be prepared in the same format in which the actual
position is to be presented. The year’s budget is usually prepared into shorter
periods for control. For example, prepare the cash budget in monthly or
quarterly.