1.5: Finance Flashcards
1.5.1: Budgeting 1.5.2: Cash Flow Forecasting
What is the definition of a budget
A plan for future expenditure, they are objectlive driven targets for revenues and costs over a period of time
What are the 3 different types of budget
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
Why do Budgets have to be controlled
The budget holder has to monitor differences (variances) and report them
State the 6 budgeting steps
Establish aims and objectives, Establish key functional budgets, Establish Other budgets, Procedures for monitoring, Reporting any variances and Evaluation of Budgeting process
What is Zero-Based Budgeting
Each department comes up woith a budget and they have to justify it
State 2 advantages and 2 disadvantages of Zero-Based Budgeting
A: Identify surplus budgets for departments and Can be used to decrease budget size
D: Time Consuming and Bias over skills at budgeting
What is Variance Analysis
Process used to monitor budgets, by looking at the difference between the budget and what actually happened
What is the diffrenece between a favourable and an adverse variance
Favourable is where is performance is better than budgeted performance whereas adverse is the opposite
Actual - Budgeted
What 3 factors do businesses consider when analysing variances
Size of variance, One-Off or a serious trend and cause and its predictability
State 3 benefits and 3 drawbacks of budgeting
B: Motivate teams, Improves Management Control and Ability to have financial control
D: Inflexibility, Demotivates those excluded from the process and Inaccuracy with data
What is the difference between cash and profit
Cash is physical money whereas profit is money left when revenue is greater than expenditure
What is Cash Flow
The measure of flow of revenue in versus flow out in expenses
What is the difference between Cash Flow Surplus and Cash Flow deficit
Surplus is more in than out whereas deficit is the opposite
What is the difference between Cash Flow Forecasting and A Cash Flow Statement
Forecasting is forward-looking whereas statements are backward looking
What 4 main things make up a Cash Flow forecast
Revenue, Expenses, Net Cash Flow and Balances