Chapter 9 - Cash Budgeting

Question 1

What does a cash budget detail ?

Answer 1

A cash budget details the forecast bank receipts and payments (Usually monthly)

Question 2

Why does the cash budget detail the forecast bank receipts and payments ?

Answer 2

it does this in order to show the forecast bank balance at the end of each month throughout the budget period

Question 3

In accounting cash budget terms

What is meant by liquidity ?

Answer 3

The ability to have sufficient money in the bank to pay its way on a day to day basis

Question 4

The cash budget focuses on the ………. of a business ?

Answer 4

Liquidity

Question 5

What is the difference between cash and profit ?

Answer 5

• Cash is money in the bank or held as physical cash
• Profit is a calculated figure which shows the surplus of income over expenditure over a period

Question 6

Cash and Profit

Capital expenditure reduces ……….. but……… is affected only by the amount of depreciation on the asset ?

Answer 6

1. Reduces cash
2. profit is affected only by depreciation on the asset

Question 7

Cash and Profit

An increase in trade payables will increase ……….. but until payment is made, the……….. ……….. will not increase ?

Answer 7

1. Increase Profit
2. Bank balance

Question 8

Cash and Profit

A decrease in trade payables will have no effect on …….. but the ……… ……….. will decrease ?

Answer 8

1. Profit
2. Bank balance

Question 9

Cash and Profit

Can a business make profit whilst the bank balance is reducing ?

Answer 9

Yes as profit and cash are not directly related

Question 10

What are the three main sections of a cash budget ?

Answer 10

1. Receipts for the month
2. Payments for the month
3. Summary of Bank account

Question 11

Depreciation of a non-current asset does not feature in cash budgets because ?

Answer 11

It is a non-cash expense

E.g no cash flow