CHAPTER II THEORETICAL BACKGROUND

INTRODUCTION
Cash is probably the most vulnerable asset in any organization. Cash is easily stolen, lost,
misused, uncollected, improperly mismanaged and often lacks adequate written policies and
procedures (control measures).
Cash is often improperly monitored by management or ignored all together. Effective
cash management is imperative in every business organization, whether for profit or not for
profit. Cash consists of unrestricted and restricted cash accounts, checking and saving accounts,
certificate of deposits. Treasury bills, money market funds, commercial funds and federal
government funds are all cash equivalents. All cash and cash equivalents must be disclosed as
current assets in financial statements in accordance with GAAP (Generally Accepted Accounting
Principles).
Effective cash management must be incorporate accuracy, completeness, authorization,
existence, disclosure and reporting overall cash activities and the cash cycle within the
organization. Management requires the control over cash so that future business planning,
forecasts, and projects can be made, as well as for the production and issuance of the entitys
financial statements to stockholders, investors and financiers.
Cash is the backbone of business transactions, despite the nature of business and personal
society. The cash cycle consists of several key components, regardless of industry type, profit
motivation, and the form of organization of the business. The revenue generates cash and
financing functions of the business and cash is expended by the operating and acquisition
activities.
Therefore, every organization must effectively manage its cash flow acquire cash,
spend cash, anticipate cash needs, and report on sources and uses of cash.

CASH MANAGEMENT
Finance is the lifeblood of the business. In the post modern highly competitive business
world finance is the very essential factor for every transaction. Without finance, none can set up
the business. Direct and indirect expenses needs cash and bank balance. Raw material
purchasing, maintenance work expenses and employees salary are the major expenses met by the
organization.

CASH BUDGET
It is the short-term cash forecasting and the principle tool of cash management. The firm
prepares a cash flow statement every month, which also contains the forecast of cash flow for
future period.
The cash flow statement contains sales realization, operational payment, non-operational
receipts and payments and finally surplus/deficit for the month. The main objective of the cash
budget is to achieve management objective.

Preparation of Cash Budget

The principle aim of cash budget, as a tool to predict cash flow over a given period of
time. Preparation of cash budget involves various steps; these may be described as the element of
cash budget system. The planning horizon means the time span over which the cash flow are to
be projected. The planning horizon of the cash budget should be determined in the light of the
circumstances and requirement of particular case.

THE PROBLEM IDENTIFIED

The following problems found in JSSSK Ltd. Hupari.

Lack of improper cash management.

Improper debt collection system.

Improper management of surplus cash.

Improper accounts receivables management.

OBJECTIVE OF THE STUDY

1) To study the overall cash management in JSSSK Ltd. Hupari.
2) To classify various expenses.
3) To study the Cash flow Statement of Firm
4) To manage investment of surplus cash.
5) To study the investment decision of the firm.
These objects are taken to study mainly because a proper cash management will give
solutions to other problems like wage payment, debtor collection etc

Goal of cash management

The primary goal of cash management of the factory is the tradeoff between liquidity &
profitability in order to maximize long term profit. This possible on the only when the firm aims
at optimizing the use of firms on the working capital pool. This overall objective can be
translated into operational goals.

Importance of cash management

According to study their many techniques available

for helping a business to improve the cash flow. Some the techniques are sell for cash or credit
cards rather than on terms, if you do cell on terms establish good credit policies ,bill promptly,
add late charges and fees when possible ,tighten customer credit requirements pay bill only on
due date or later it possible. Reduce the inventory to the most necessary items, dump slow
moving items at cost, lease instead of purchasing equipment. Make bank deposits promptly,
consider prudent borrowing, increase sales & increase prices.

CASH FLOW
Cash plays a very important role in the economic life of a business. A firm needs cash to
make payment to its suppliers, to incur day-to-day expenses and to pay salaries, wages, interest
and dividends etc. In fact, what bloodies to a human body, cash is to a business enterprise. Thus,
it is very essential for a business to maintain an adequate balance of cash.
For example, :concern operates profitably but it does not have sufficient cash balance to pay dividends,
what message does it convey to the shareholders and public in general. Thus, management of
cash is very essential. There should be focus on movement of cash and its equivalents. Cash
means, cash in hand and demand deposits with the bank. Cash equivalent consists of bank
overdraft, cash credit, short term deposits and marketable securities. Cash Flow Statement deals
with flow of cash which includes cash equivalents as well as cash. This statement is additional
information to the users of Financial Statements. The statement shows the incoming and
outgoing of cash.
Transactions which increase the cash position of the entity are called as inflows of cash
and those which decrease the cash position as outflows of cash. Cash flow Statement traces the
various sources which bring in cash such as cash
from operating activities, sale of current and
fixed assets, issue of share capital and debentures etc. and applications which cause outflow of
cash such as loss from operations, purchase of current and fixed assets, redemption of
debentures, preference shares and other long-term debt for cash.

Cash Inflow
Funds received by a company due to sales, financing, or investments. Cash inflows
are used to gauge the overall financial health of a business, and a company with a large and
stable cash inflow can be considered to be in a good financial position.

Cash Interest
Cash amounts that periodically accrue on an account that can eventually be paid out to the
account holder. Cash interest payments vary depending on the type of account, the amount of
money present in the account, and the interest rate that was assigned to the account. Cash interest
must be reported to the Internal Revenue Service when the account holder files his/her taxes.
What is meant by cash inflow and outflow and difference :
cash inflow means the cash comes in to the company i.e,cash which has to come towards
the company that amount is called cash inflow it includes revenue the cash out flow means the
amount or cash that which has to pay by the company i.e,the actual amount of cash which has to
be go out from ten company that amount is called cash outflow it includes expenditure Excess of
Cash Inflows (Receipts)over Cash Outflows (Payments during a certain period is net Cash
Inflow & excess of Outflows over inflow is net Cash Outflow or shortage of cash

Cash and relevant terms as per AS-3 (revised)

As per AS-3 (revised) issued by the Accounting Standards Board
1. (a) Cash fund :
Cash Fund includes (i) Cash in hand
(ii) Demand deposits with banks, and
(iii) cash equivalents.
(b) Cash equivalents are short-term, highly liquid investments, readily
convertible into cash and which are subject to insignificant risk
of changes in values.
2. Cash Flows are inflows and outflows of cash and cash equivalents.
The statement of cash flow shows three main categories of cash inflows
and cash outflows, namely : operating, investing and financing activities.
(a) Operating activities are the principal revenue generating activities
of the enterprise.
(b) Investing activities include the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
(c) Financing activities are activities that result in change in the size
and composition of the owners capital (including Preference
share capital in the case of a company) and borrowings of the
enterprise.
CHAPTER IV PRESENTATION OF DATA

Expenditures of JAWAHAR SHETAKARI SAHAKARI

SAKHAR KARAKHANA

LTD.HUPARI
EXPENDITURE
Cane purchase
Salary and Wages
Store and Repairs
Production and Sales
Expenses
Raw
and

2009-10
1900763974.50
117511905.42
165433341.74
19854015.21

Sugar -----

2010-11
3077137480.00
205511649.00
194241313.00
23244106.00

2011-12
3241893012.12
275437837.01
212879701.49
23596006.72

180719589.00

-------

Purchase
Excise Duty
Administrative

136595574.89
38928647.52

167143482.00
58939964.00

162871647.92
54134776.25

Expenses
Interest
Depreciation
Provision
Net Profit
TOTAL

50642225.23
35030647.00
40714041.24
36621134.92
2542095507.69

55800324.00
37593391.00
67135224.00
26402860.00
4084502899.00

63474650.00
50608547.00
36277000
14153531.38
4135326709.89

RECIEPTS
2009-10
Sugar
production 2008060069.42

2010-11
3775717302.00

2011-12
3786688870.95

value
By-Product

240149807.55

219437047.00

196103013.23

Production value
Co-generation

36786605.00

53354817.00

45830239.50

receipts
Other Income
By product Profit
Petrol pump Profit
NET LOSS
TOTAL

2043499323.83
51771308.64
978393.23
-------2542095507.67

33396170.00
1463296.00
1234268.00
---------4084502899.00

81841807.45
23639856.57
1222922.19
----------4135326709.89

RECIEPTS

LOAN OF BANKERS IN JSSSK LTD, HUPARI

Sr

PRRTICULARS

AS ON

No.
1

31/03/2011
Bank Of India Br. Ichalkaranji ( No 75100000.00

31/03/2012
173797970

Interest)
Bank Of

18536264

India Br. Ichalkaranji 91662662.00

(Refinery Loan)
S D F (Central Govt.)
18750000.00
Working Capital Loan
Bank Of
India Br. Ichalkaranji 460277415.47

(Sugar Malta ran Loan)

Bank Of
India Br. Ichalkaranji 513077400.00

AS ON

25000000
651728769
518693524

(Sugar Malta ran Credit Loan)

Total

1068867477

1387756527

Cash Flow Statement

A)
2011-12
Cash Inflows
Sugar production 3786688870.95
value
By-Product

196103013.23

Production value
Co-generation

45830239.50

receipts
Other Income

81841807.45

By product Profit

23639856.57

Petrol pump Profit

1222922.19

NET LOSS

-----------

TOTAL

4135326709.89

B)
Cash outflows
EXPENDITURE
Cane purchase
Salary and Wages
Store and Repairs
Production
and

2011-12
3241893012.12
275437837.01
212879701.49
23596006.72

Sales Expenses
Raw and Sugar ------Purchase
Excise Duty
Administrative

162871647.92
54134776.25

Expenses
Interest
Depreciation
Provision

63474650.00
50608547.00
36277000

TOTAL

4135326709.89

C)
Surplus /Deficiency A-B

14153531.38

CHAPTER V ANALYSIS OR INTERPRETATION OF DATA

1) CURRENT ASSETS
YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
79507765.67
104830176
159357100.5
343695042.2

PERCENTAGE
23.13%
30.50%
46.37%
100%

amount

amount
180000000
160000000
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0

amount

Interpretation
1.Current asset of Karakhana increasing every year, as it is positive sign.
2) FIXED ASSETS
YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
1202911004.79
1406155640
1443261742
4052328387

PERCENTAGE
29.70%
34.70%
36.60%
100%

amount

amount

amount

1. Karkhana purchased new land near its location for expansion purpose, So Its fixed asset
amount increases,

3) CURRENT LIABILITY
YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
698109426.77
1076647826
1244535918
3019293171

PERCENTAGE
23.12%
35.65%
41.23%
100%

amount

1.Current liabilities are increasing its not good sign for organization and its causes to high
interest payment

4) NET PROFIT
YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
36621134.92
26402864.00
14153531.38
77177530.3

PERCENTAGE
47%
34%
19%
100%

AMOUNT

AMOUNT
40000000
35000000
30000000
25000000

AMOUNT

20000000
15000000
10000000
5000000
0

1. Net profit is reducing as comparing to previous year due to liabilities increasing and
another important reason is factory worked not full capacity.

5) EXPENSES
YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
19854015.21
23244106.00
23596006.72
66694127.93

PERCENTAGE
30%
33%
38%
100%

AMOUNT

AMOUNT
24000000
23000000
22000000
21000000

AMOUNT

20000000
19000000
18000000
17000000

1.expensis are increasing every year so factory take some action to reduce the expenses.

6) EXCISE DUTY

YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
136595574.89
167143482.00
162871647.92
466610704.8

PERCENTAGE
30%
36%
34%
100%

AMOUNT

AMOUNT
200000000
150000000

AMOUNT

100000000
50000000
0

1.due to low working capacity of factory excise is decreasing.

7)SALARY AND WAGES

YEAR
2009-10
2010-11
2011-12
Total

AMOUNT
117511905.42
205511649.00
275437837.01
598461391.4

PERCENTAGE
20%
35%
45%
100%

AMOUNT

AMOUNT
300000000
250000000
200000000

AMOUNT

150000000
100000000
50000000
0

1.due to unproductive labour the factory labour expenses are increasing.