cash flow and budgets

Question 1

what is cash flow forecasts used for

Answer 1

estimate their total cash inflows and total cash outflows for a future period of time

Question 2

what is net cash flow

Answer 2

difference between total inflows and total outflows

Question 3

what is the opening balance

Answer 3

opening balance at start of the month is the same as the closing balance of the previous month

Question 4

what can happen if a business has cash flow problems

Answer 4

can become bankrupt
they lack short term cash to pay short term debts

Question 5

how can cash flow be improved through receivables

Answer 5

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)

Question 6

how can cash flow be improved through payables

Answer 6

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

Question 7

what does a business use budgets for

Answer 7

forecast revenue, expenditure m, and profit during a period

Question 8

what does a revenue budget do

Answer 8

forecasts expected revenues for a business during a period

Question 9

what is a favourable variance

Answer 9

if actual revenue is higher than the forecast

Question 10

what is an adverse variance

Answer 10

if revenue is less than expected

Question 11

what’s an expenditure budget forecast

Answer 11

forecasts expected costs for a business during a period.

Question 12

what are used to create profit budgets

Answer 12

revenue and expenditure budgets

Question 13

what is a favourable variance in a profit budget

Answer 13

if overall profit is higher than forecast

Question 14

what is an adverse variance in a profit budget

Answer 14

if overall profit is lower than forecast

Question 15

advantages of budgeting

Answer 15

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

Question 16

what can businesses use break even analysis to predict

Answer 16

the level of output at which total costs and total revenues will be the same

Question 17

what is contribution per unit

Answer 17

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

Question 18

what is contribution per unit

Answer 18

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

Question 19

what is the formula for contribution

Answer 19

selling price per unit - variable costs per unit

Question 20

what is total contribution

Answer 20

the amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away

Question 21

formula for total contribution

Answer 21

total revenue - total variable costs

Question 22

what is gross profit

Answer 22

gross profit targets involve the amount of profit remaining once direct costs (costs of sales) have been paid by the business

Question 23

what is the formula for the gross profit margin

Answer 23

(gross profit ➗sales revenue) x100

Question 24

what is operating profit

Answer 24

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

Question 25

operating profit margin formula

Answer 25

(operating profit ➗ sales revenue) x 100

Question 26

what is profit for the year

Answer 26

profit for the year target involves the amount of profit remaining once all costs and financing fees have been considered

Question 27

what is the profit for the year margin formula

Answer 27

(profit for the year ➗ sales revenue) x 100