• Wade Myers

Working Capital Assumptions

Q: The model appears to automatically enter the Expenses in the same period as the Revenue is recognized, but what if I’m paying for Expenses in a different time period? How do I get the Cash Flow report to reflect that accurately?

A: In accordance with GAAP-compliant accrual accounting, Expenses are recorded in the same period as the Revenue and that’s how the model works. Separately if you are prepaying Expenses or paying at a later date, you control that impact on the Cash Flow statement in the model through the Working Capital assumptions.

For example, if you typically pre-pay expenses by 30 days after the fact, you would enter a “30”in the “Days of Accounts Payable” assumption. The Working Capital assumptions drive your Cash Flow properly. The assumptions work the same way for inventory. This screen shot shows how to model Accounts Payable of 20 days and maintaining an Inventory of 45 days after an initial inventory build-up of 5,000 worth of initial inventory prior to selling any product:

Accounts Receivable assumptions are entered separately for each offering as receivables are offering dependent. See this support blog post for additional info.

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