finance: cash budgeting Flashcards
cash budget
this is a forecast of all the the money coming into and going out of the business over a period of time
potential cash budget problems
- low sales lower money coming into business
- too much money tied up in stock
- owner taking out too many personal drawings
solutions for a poor cash budget
- organise a source of finance
- chase in outstanding bills
- lease equipment instead of buying
purpose of a cash budget
- allows the firm to spot surplus cash
- useful document to apply for a bank loan
- allow firms to set targets
2 types of financial statements
- income statement
- statement of financial position
income statement
calculates:
1. gross profit
2. profit for the year
sales
money made from the selling of products
costs of sales
the cost of all the purchases the firm has made over the previous trading year
purchases
the raw material and the products the firm buys
opening stock
the stock the firm has at the start of the financial year
closing stock
the stock the firm has left at the end of the year, which will be carried over to the next year
how to calculate cost of sales
cost of sales = opening stock + purchases - closing stock
how to calculate gross profit
gross profit = sales - cost of goods sold
expenses
costs such as lighting, rent, advertising, delivery and loan repayments
how to calculate profit for the year
profit for the year = gross profit - expenses
purpose of an income statement
- to show net sales
- for legal reasons
- to compare with previous years
statement of financial position
shows the value of a business at a particular point in time
non current assets
these are items which the business owns and will keep for more than one year
current assets
these are items which the business owns and will keep for less than one year
current liabilities
these are items which the business owes and will pay for in the short-term
working equity
this shows the difference between current assets and current liabilities
purpose of a statement of financial position
- informs decision making
- can be used to calculate ratios
- compare with previous years
