1.5: Finance

Question 1

What is the definition of a budget

Answer 1

A plan for future expenditure, they are objectlive driven targets for revenues and costs over a period of time

Question 2

What are the 3 different types of budget

Answer 2

Sales Revenue: Firms expected sales revenue from selling products
Expenditure: Expected expenditure on a monthly basis of a range of expenses
Profit: Combining sales revenue and expenditure budgets

Question 3

Why do Budgets have to be controlled

Answer 3

The budget holder has to monitor differences (variances) and report them

Question 4

State the 6 budgeting steps

Answer 4

Establish aims and objectives, Establish key functional budgets, Establish Other budgets, Procedures for monitoring, Reporting any variances and Evaluation of Budgeting process

Question 5

What is Zero-Based Budgeting

Answer 5

Each department comes up woith a budget and they have to justify it

Question 6

State 2 advantages and 2 disadvantages of Zero-Based Budgeting

Answer 6

A: Identify surplus budgets for departments and Can be used to decrease budget size
D: Time Consuming and Bias over skills at budgeting

Question 7

What is Variance Analysis

Answer 7

Process used to monitor budgets, by looking at the difference between the budget and what actually happened

Question 8

What is the diffrenece between a favourable and an adverse variance

Answer 8

Favourable is where is performance is better than budgeted performance whereas adverse is the opposite
Actual - Budgeted

Question 9

What 3 factors do businesses consider when analysing variances

Answer 9

Size of variance, One-Off or a serious trend and cause and its predictability

Question 10

State 3 benefits and 3 drawbacks of budgeting

Answer 10

B: Motivate teams, Improves Management Control and Ability to have financial control
D: Inflexibility, Demotivates those excluded from the process and Inaccuracy with data

Question 11

What is the difference between cash and profit

Answer 11

Cash is physical money whereas profit is money left when revenue is greater than expenditure

Question 12

What is Cash Flow

Answer 12

The measure of flow of revenue in versus flow out in expenses

Question 13

What is the difference between Cash Flow Surplus and Cash Flow deficit

Answer 13

Surplus is more in than out whereas deficit is the opposite

Question 14

What is the difference between Cash Flow Forecasting and A Cash Flow Statement

Answer 14

Forecasting is forward-looking whereas statements are backward looking

Question 15

What 4 main things make up a Cash Flow forecast

Answer 15

Revenue, Expenses, Net Cash Flow and Balances

Question 16

What is Net Cash Flow

Answer 16

Total Revenue - Total Expenses
+ = Revenue > Expenditure
- = Expenses > Revenue represented as a - or ())

Question 17

Why are Closing Balances so important

Answer 17

Becomes the opening balances for the next month so if the net cash flow is negative we subtract and if it is positive we add

Question 18

How can a business control its cash flow better

Answer 18

Better Records, Use Cash Flow forecasts, and Keeping tight control over credit systems because holding too much cash can be very unproductive

Question 19

State 3 problems and 3 useful elements of cash flow forecasting

Answer 19

Low Sales, Rising Costs, and Internal Factors
Necessary for financial investment, Can arrange for extra finances in times of deficit and identify timings of shortages and surpluses

Question 20

What is Liquidity

Answer 20

Measure of the availability of working capital a liquid asset is one that can be turned into cash quickly and easily as working capital is what keeps the day-to-day operations running

Question 21

State 4 ways a business can improve its Cash flow

Answer 21

Increase Revenue, Reduce Costs, Delay Payments and Extra Funding