How to do an inventory purchase budget and cash disbursements?
To create an inventory purchase budget and cash disbursements, you can follow these steps:
1. Determine your sales forecast: Start by estimating the sales you expect to make during a specific period. This will serve as the basis for your inventory purchase budget.
2. Calculate desired ending inventory: Determine the level of inventory you want to have at the end of the period. This could be a specific quantity or a target number of days' worth of inventory.
3. Calculate cost of goods sold (COGS): COGS represents the direct costs associated with producing or purchasing the goods you sell. It includes the cost of raw materials, labor, and any other costs directly related to production or procurement. Estimate your COGS based on historical data or industry standards.
4. Calculate beginning inventory: Determine the inventory you have on hand at the beginning of the period. This can be obtained from your previous accounting records.
5. Calculate required inventory purchases: The formula to calculate the required inventory purchases is:
Required Inventory Purchases = Sales Forecast - Beginning Inventory + Desired Ending Inventory.
6. Estimate cash disbursements: Convert the required inventory purchases into cash disbursements by taking into account the payment terms offered by your suppliers. If you typically pay for inventory within a certain period, factor that into your cash disbursements estimate.
7. Consider other factors: Factor in any additional cash disbursements related to inventory, such as shipping and handling fees or storage costs.
8. Prepare the budget: Create a spreadsheet or use budgeting software to organize your inventory purchase budget and cash disbursements. Break the budget down by month or quarter, depending on your preference.
9. Monitor and adjust: Regularly compare your actual purchases and cash disbursements with your budgeted amounts. If there are significant deviations, revise your budget and procurement plan accordingly.
Remember, these steps provide a general framework for creating an inventory purchase budget and cash disbursements. The specific details and calculations may vary based on your organization's unique circumstances and requirements. Additionally, consulting with a financial professional or accountant can provide valuable insights and guidance throughout the process.