Cash Budgeting Flashcards
Does profit equal cash
No regardless of profitability a business needs cash to survive
What are the possible sources of cash coming into business
- Sale of goods or services for cash
- Receipts from customers who have bought goods or services on credit
- Bank loan
- Issuing shares
- Income from investments for example interest
Why might cash go out of the business
- Buying inventory for cash
- Paying trade payables
- Buying non-current assets
- Paying wages and salaries
- Paying rent and other expenses
- Paying tax
- Repaying loans
- Paying interest on borrowings
What does the cash budget show
The projected inflows and outflows of cash to and from a business
What does a cash budget deal with
With movement of cash so figure is very different from profit calculations
Will formats vary between businesses
Yes
What is a cashbudget broken down into
Sub periods
How is the cash budget set out
In columns
What estimates can A cash budget tell us
- Where the cash will come from
- Where the cash will go to
- How much there will be at the end of the month
- If inflows exceed outflows or vice versa
- If additional funding is required
- If there is surplus funds
Is cash budgeting a key budget
Yes
What is it an important tool for
Planning and control
Will even the smallest of businesses require a cash budget
Yes
What do cash budgets enable managers to see
How planned activities will impact on the cash balance of the business
If a surplus is expected how can manages decide to use the Spartans
Invest, expand the business, offer more credit to customers, pay suppliers more quickly, repair interest-bearing borrowings
How can a deficit be. Covered
Loan, overdraft, offer less credit, take longer to pay suppliers
What could be made in advance to avoid large surpluses and deficits
Alterations
What will happen if outflows consistently outweigh inflows
The business will not survive
How can a manager insure the business survives
By identifying in advance that outflows outweigh inflows
How else will a cash budget help
In the case of managers planning to expand the business it will show them if it is possible
Identifying if and when the company has enough cash to buy additional equipment
When do managers make better decisions
When they have more information
List some spreadsheet adjustments
Change the proportion of cash to credit sales, increase the level of investment, increase the level of borrowings
What will spreadsheets adjustments do
It will affect the cash position
