Cash Budgeting

Question 1

What are Cash Budgets?

Answer 1

A cash budget forecasts how much money the business thinks will be coming in each month and going out each month in the course of the year ahead. The final figure at the end of each month represents how much money the business forecasts it will have left (closing balance).

Question 2

What are the purposes of a Cash Budget?

Answer 2

It helps to predict cash income and outgoings.
It helps to control costs and spending.
It helps to plan for large future purchases.
It helps to set targets for individual departments.

Question 3

How does a business generate cash?

Answer 3

Selling products/services.
Receiving a bank loan/grant.
Issuing shares (for ltds only).

Question 4

What do businesses spend cash on?

Answer 4

Purchasing raw materials from suppliers (Purchases).
Paying staff wages.
Advertising costs.

Question 5

What are the causes/problems with Cash Flow?

Answer 5

Cash Sales and Credit Sales are decreasing due to demand falling for products/services.
Purchase costs are increasing due to suppliers increasing the prices of raw materials or goods.
Bank charges due to late loan/overdraft payments.

Question 6

What are the Cash Flow Solutions?

Answer 6

Launch an advertising campaign to remind customers about your product.
Switch utility supplier to find a better deal.
Negotiate with supplier for a better deal for raw materials.
Have a meeting with the bank to discuss charges and arrange a payment plan.