Week 4 Practical Exercise

Part One Accounts Receivable Management

Time Days Outstanding		Quarter Totals	Sept 1-30 Days	Aug 31-60 Days	July 61-90 Days
	Formulas
Net Accts Receivable	GIVEN	4700	400	700	3600
Net Patient Revenue	GIVEN	14700	900	4900	8900
Average Daily Pt Rev	Net Pt Rev / Number of Days in the Period
Days in Acct Receivable	Net Accts Rec / Average Daily Pt Rev
Aging Schedule	Months Net Accts Rec / Net Acct Rec Quarterly Total	N/A	%	%	%
Acct Rec as a % of Net Pt Revenues	Net Accts Rec / Net Pt Rev	%	%	%	%

Notes: You exercise varies from the one in the text book in that we are only using one quarters data, and we are not making the comparison the text requires.

1. Note that the quarterly total is equal to the sum of the 3 separate months in the quarter.

2. The Average Daily Pt Rev was not given as a part of the problemHowever, it must be calculated before you can calculate Days in Accts Receivable. This is calculated by dividing the Net Pt Rev by the number of days in the period (for simplicity, we consider that each month has 30 days, and the quarter to have 90 days). Note that if you add the 3 monthly figures and divide by 3, you will get the quarterly figure may vary slightly due to rounding.

3. When you calculate the quarterly and monthly Days in Accts Receivable, note that the monthly numbers will add up very closely to the quarterly number variances depending on the rounding process of all calculations.

4. The Aging Schedule is recorded as a percentage. Do not calculate a figure for the quarterly block you are calculating each month as a part of that quarterly total. Note that the sum of the months percentages should equal 100%- may vary some due to rounding.

5. The Accounts Receivable as a Percent of Net Patient Revenues is also reported as a percentage. Note that although there is some relation between the quarterly percentage and the monthly numbers, it is not as concrete as the other relationships that have been noted.

Part Two

GIVENS FROM THE EXERCISE
PATIENT REVENUES FROM 20X0		OCTOBER		4,500,000
		NOVEMBER		4,700,000
		DECEMBER		5,100,000
ESTIMATED PATIENT REVENUES FROM 20X1		JANUARY		5,100,000
		FEBRUARY		5,500,000
		MARCH		5,800,000
OTHER REVENUES FROM 20X1		JANUARY		82,000
		FEBRUARY		140,000
		MARCH		220,000
ESTIMATED CASH OUTFLOWS FOR 20X1		JANUARY		3,400,000
		FEBRUARY		3,600,000
		MARCH		4,000,000
		APRIL		4,600,000
RECEIPT OF PAYMENT FOR PATIENT REVENUES AND SERVICES		CURRENT MONTH OF SERVICE		60%
		1ST MONTH OF PRIOR SERVICE		30%
		2ND MONTH OF PRIOR SERVICE		10%
		3RD + MONTHS OF PRIOR SERVICE		0%
THE CASH BUDGET FOR JAY ZEEMAN CLINIC
ITEM	FORMULA/NOTES	JANUARY	FEBRUARY	MARCH	TOTAL
CASH INFLOWS
FROM OCTOBER	SEE A BELOW	0	0	0	0
FROM NOVEMBER	SEE B BELOW		0	0
FROM DECEMBER	SEE C BELOW			0
FROM JANUARY	SEE D BELOW
FROM FEBRUARY	SEE E BELOW	0
FROM MARCH	SEE F BELOW	0	0
OTHER REVENUES	SEE GIVENS ABOVE
NET CASH INFLOWS	TOTAL AMTS IN THE PREVIOUS 7 ROWS FOR EACH MO.
FORECASTED CASH OUTFLOWS	SEE GIVENS ABOVE
MONTHLY/QUARTERL NET CASH FLOW	NET CASH INFLOWS MINUS FORECASTED CASH OUTFLOWS
BEGINNING BALANCE	SEE G BELOW
CASH BEFORE BORROWING OR INVESTMENT	NET CASH FLOW PLUS BEGINNING BALANCE SEE H BELOW
REQUIRED CASH BALANCE	SEE I BELOW
SURPLUS/(DEFICIT)	CASH BEFORE BORROWING OR INVESTMENT MINUS REQUIRED CASH BALANCE
$$$ TO BE INVESTED	SEE J BELOW
$$$ TO BE BORROWED	SEE J BELOW
ENDING CASH BALANCE	SEE K BELOW

NOTE: Your text has indicated that Jay Zeeman Clinic expects to receive a certain percentage of each months Patient Revenues periodically over the quarter. (See the information listed in the GIVENS above.) I have broken down each months receipts in the following notations. The ZEROs that appear in the table above should be left in place.

A. CASH INFLOWS FROM OCTOBER TO ALL MONTHS WOULD BE $0 BECAUSE NOVEMBER IS 3 OR 3+ MONTHS PRIOR TO SERVICE FOR ALL MONTHS IN THIS QUARTER.

B. CASH INFLOWS FROM NOVEMBER WOULD BE:

• 10% IN JANUARY
• 0% IN FEBRUARY
• 0% IN MARCH

C. CASH INFLOWS FROM DECEMBER WOULD BE:

• 30 % IN JANUARY
• 10% IN FEBRUARY
• 0% IN MARCH

D. CASH INFLOWS FROM JANUARY WOULD BE:

• 60 % IN JANUARY
• 30% IN FEBRUARY
• 10 % IN MARCH

E. CASH INFLOWS FROM FEBRUARY WOULD BE:

• 60% IN FEBRUARY
• 30% IN MARCH

F. CASH INFLOWS FROM MARCH WOULD BE:

• 60% IN MARCH

G. The BEGINNING BALANCE for each month is the same as the ENDING BALANCE for the previous month. Your text indicates that the DECEMBER 20X0 ENDING BALANCE was $1,300,000. This becomes the BEGINNING BALANCE for JANUARY 20X1. As you complete the rest of this cash budget, you can get your ENDING/BEGINNING BALANCES for the other months.

SPECIAL NOTE FROM THIS POINT, YOU WILL NEED TO COMPLETE THE JANUARY COLUMN TO GET THE ENDING CASH BALANCE BEFORE CONTINEING TO FEBRUARY. THEN COMPLETE FEBRUARY TO GET THAT ENDING BALANCE, THEN FINALLY GO TO MARCH AND COMPLETE THE EXERCISE.

H. Be sure to use the $$$ from MONTHLY/QUARTERLY NET CASH FLOW, not NET CASH INFLOW.

I. Your text defines REQUIRED CASH BALANCE as: The amount of cash an organization must have on hand at the end of the current period to ensure that it has enough cash to cover the expected outflows during the next forecasting period. The GIVENS for this problem indicated that the REQUIRED CASH BALANCE at the end of each month must equal 40% of the FORECASTED CASH OUTFLOWS for the following month.

EXAMPLE: To calculate the REQUIRED CASH BALANCE for January, multiply the February FORECASTED CASH OUTFLOWS BY 40%.

3,600,000 x .40 = 1,440,000

Also note --- the REQUIRED CASH BALANCE for March can be calculated since the Forecasted Cash Outflow for April is in the GIVENS.

J. Once you have determined if the CASH BEFORE BORROWING OR INVESTMENT and THE REQUIRED CASH BALANCE, you can determine whether there will be money to invest, or if it will be necessary to borrow money --- fill in these blanks.

K. The ENDING BALANCE will be equal to the REQUIRED CASH BALANCE for the month. (If the CASH BEFORE BORROWING OR INVESTMENT is more than the REQUIRED CASH BALANCE, you will invest the excess, leaving only the REQUIRED CASH BALANCE as the ENDING BALANCE; OR if the CASH BEFORE BORROWING OR INVESTMENT is less than the REQUIRED CASH BALANCE, you will have to borrow money to bring the ENDING BALANCE up to the REQUIRED CASH BALANCE.