Chapter 18 - Working capital management (cash control)

Question 1

What are the key principles of cash management?

Answer 1

• Collect debts asap
• Pay suppliers as late as possible
• bank cash takings promptly

Question 2

What are cash forecasts used for?

Answer 2

• Assess and integrate operating budgets
• Plan for cash shortages and surpluses
• Compare with actual spending

Question 3

What are the 2 different techniques used to create a cash forecast?

Answer 3

• Receipts and payments forecast
• Statement of financial position forecast

Question 4

What is a receipts and payments forecast based on?

Answer 4

Predictions of sales and COS

Question 5

What steps are taken to prepare a cash forecast?

Answer 5

1. Prepare a pro-forma
2. Fill in simple figures
3. Work out more complex figures

Question 6

What is a SOFP forecast based on and used for?

Answer 6

derived from predictions of future statement of financial position

used to predict cash balance

Question 7

What factors need to be considered when interpreting a cash forecast?

Answer 7

• Does the cash balance become a deficit
• key causes of deficits
• Best time to make discretionary expenditure

Question 8

How is the cash collection period worked out?

Answer 8

(Customer % x normal collection period) + (Customer % x discount period)