Budgeted Cash Flow Statements

Question 1

Budgeting

Answer 1

• Budgeting is the process of predicting or estimating the financial consequences of future events
  
  • Budgeting assists planning by establishing desired outcomes so that specific action can be taken to ensure that goals are achieved
  • Budgeting assists in control as it gives a road map for achieving the goals laid out in the budget and provides a method of holding staff accountable when targets are not met
  • Budgeting aids decision making by providing a standard or benchmark against which actual performance can be measured

Question 2

Uses of BCFS - planning

Answer 2

• Allows management to plan their desired outcomes by setting goals, for example, what is the final cash outcome of for the period by drawing up a budget?
• Allows management to put specific actions in place to ensure the budgeted goals are met
• Allows management to prepare in advance for an expected increase or decrease in cash

Question 3

Uses of BCFS - control

Answer 3

• Provides a framework or road map for the budgeted period setting targets against which progress can be monitored to ensure the business is on track to achieve its goals and adjustments made if necessary
• At the end of the period, drawing up the variance reports presents variations that can be explored and employees can be held to account and results provide them with targets for the future

Question 4

Uses of BCFS - decision making

Answer 4

• Comparing budgeted reports against actual reports allows for comparisons against set benchmarks and for problem areas to be identified and addressed in the next budgeting process