cash flow and budgets Flashcards
what is cash flow forecasts used for
estimate their total cash inflows and total cash outflows for a future period of time
what is net cash flow
difference between total inflows and total outflows
what is the opening balance
opening balance at start of the month is the same as the closing balance of the previous month
what can happen if a business has cash flow problems
can become bankrupt
they lack short term cash to pay short term debts
how can cash flow be improved through receivables
money owed to the business is known as a receivable and business can reduce the trade credit period given to increase how quickly they receive their receivables (improves cash flow)
how can cash flow be improved through payables
money owed by the business to others is known as a debtor (or payables)
business can ask others for longer trade credit to reduce how quickly they must pay payables which improves cash flow
what does a business use budgets for
forecast revenue, expenditure m, and profit during a period
what does a revenue budget do
forecasts expected revenues for a business during a period
what is a favourable variance
if actual revenue is higher than the forecast
what is an adverse variance
if revenue is less than expected
what’s an expenditure budget forecast
forecasts expected costs for a business during a period.
what are used to create profit budgets
revenue and expenditure budgets
what is a favourable variance in a profit budget
if overall profit is higher than forecast
what is an adverse variance in a profit budget
if overall profit is lower than forecast
advantages of budgeting
budgets help businesses achieve targets and objectives
help managers and leaders focus on cost control (increases profit)
can be used to motivate staff by providing spending authority to individual departments and teams
what can businesses use break even analysis to predict
the level of output at which total costs and total revenues will be the same
what is contribution per unit
amount of revenue which contributes to covering a business fixed costs after the variable cost per unit has been taken away from the revenue per unit
what is contribution per unit
the amount of revenue which contributes to covering a business’ fixed costs after the variable costs per unit have been taken away from revenue per unit
what is the formula for contribution
selling price per unit - variable costs per unit
what is total contribution
the amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away
formula for total contribution
total revenue - total variable costs
what is gross profit
gross profit targets involve the amount of profit remaining once direct costs (costs of sales) have been paid by the business
what is the formula for the gross profit margin
(gross profit ➗sales revenue) x100
what is operating profit
operating profit targets involve the amount of profit remaining once direct costs (costs of sales) and indirect costs (expenses) have been paid by the business
operating profit margin formula
(operating profit ➗ sales revenue) x 100
what is profit for the year
profit for the year target involves the amount of profit remaining once all costs and financing fees have been considered
what is the profit for the year margin formula
(profit for the year ➗ sales revenue) x 100
