4.5 - Financial Control Systems

Question 1

Establishing Financial Control Systems

Answer 1

A financial control system is used to assist the business to run separate parts of the business and can help it have the funds available to pay costs, reduce theft and have inventory when needed.

Question 2

Budgeting

Answer 2

Budgeting is when a business looks at what it will expect to happen in the future and can include expected sales reserved and costs to be paid.
- This allows the business to have the funds available when needed and if it finds a short fall then it can create an overdraft facility or take out a short-term loan.

Question 3

Cashflow Management

Answer 3

• It is important that a Business has the cash in its bank account to pay its costs otherwise it can fail. Cash is also an area of the business that can have theft. It is therefore important that the business has processes in place like checking the cash received to the actual amount present to stop theft.

Question 4

Inventory Management

Answer 4

• Inventory is what a business will use to generate its income. A cafe will need coffee beans to make coffeeand a hardware show will need nails to sell.
• A business will need to have the inventory needed at a fair price when they need it, in the right amount needed and at a good quality, otherwise it will not be able to make a sale. A business also should not over-order inventory or it may spoil or be stolen leading to a loss of income and higher storage costs.

Question 5

Control of Accounts Receivable

Answer 5

• Accounts Receivable refer to the clients the business has sold to on credit. A business will sell to a customer on credit because it has the potential to increase sales and net profit. Normally, the amount owed will be expected to be paid in 30, 60, or 90 days. The risk is that they may not pay the amount they owe me.
• A business can undertake a Credit Check and then if it shows a bad rating then not sell it to them on credit. If a business has failed to repay the amount owed, it can stop giving it further credit. A business may offer an accounts receivable a discount to pay earlier, and use debt collectors to get them to pay.

Question 6

Auditing

Answer 6

• Auditing is the process where an independent outsider party will look at the financial processes that a business uses and make suggestions on how to improve them. The issue is that it can be an expensive process for the business to undertake.