Cash Budgeting

Question 1

surplus?

Answer 1

income greater than expenditure

Question 2

deficit?

Answer 2

income less than expenditure

Question 3

receipts?

Answer 3

money received by the business

Question 4

payments?

Answer 4

money to be paid out by the business

Question 5

importance of cash?

Answer 5

• crucial resource
• pay bills, wages and materials
• cabs is needed for day to day activities
• business need healthy cash flow

Question 6

budgeting?

Answer 6

• spending plan
• making money last
• allowances for outgoings
• balancing expense with income
• determine in advance whether cost can be covered

Question 7

what is a cash budget?

Answer 7

forecast of what may happen in the future which allows early corrective action to be taken if necessary.

-this is a good way to monitor and plan finances

Question 8

what are the uses of cash budget?

Answer 8

• Show period of surplus where cash can be put towards a project
• show when finances is needed for the business to operate
• compare predicted spending with actual spending - measure the performance of different departments and set targets
• showpotential lenders and investors

Question 9

what happens when sales start decreasing?

Answer 9

why is the demand going down leading to less sales? cheaper competitors bad quality? market research should be done to find the problem and more advertising and promotion could be needed to raise awareness

Question 10

what happens when purchasing are increasing?

Answer 10

• especially when sales are expected to decline, supplier could be easing prices, alternative supplier should be found.
• too much stock has purchased the JIT system adopted

Question 11

what happens when wages are increasing?

Answer 11

• sales are forecast to be done to save money over time could be cut

Question 12

what happens when the closing balance is decreasing?

Answer 12

receipts are decreasing and payments are increasing the sort of finance may be required if this trend continues