Financial planning/budgeting

Question 1

What does forecasting imply?

Answer 1

Forecasting means to draw a financial picture of the firm for the next week/quarter/year

Question 2

What is the goal of cash management?

Answer 2

To have enough cash (but not too much) to meet business obligations in a timely manner.

Question 3

What is a cash budget?

Answer 3

It is a tool that estimates future timing of cash inflows and cash outflows and projects potential shortfall and surpluses.

Question 4

What are some examples of cash inflows?

Answer 4

• Cash sales from products and services
• Collecting receivables
• Bank loans

Question 5

What are some examples of cash outflows?

Answer 5

• Paying rent
• Paying off debts
• Paying wages/salaries

Question 6

What are some solutions for cash shortfalls?

Answer 6

• Cash from savings
• Unsecured/secured loans

Question 7

What are some options for cash excess?

Answer 7

• Saving
• Replace aging assets
• Invest in the company

Question 8

What is a budget?

Answer 8

A budget is a quantitative plan for acquiring and using resources over a specified time period.

Question 9

What are some advantages of budgets?

Answer 9

• They communicate management’s plans to the whole organization
• They are the means of allocating resources to the parts of the business that can use them most efficiently
• They can uncover bottlenecks before they occur

Question 10

What is responsability accounting?

Answer 10

It reffers to the fact that managers should be held responsible only for the things they can control.

Question 11

What is a self imposed budget?

Answer 11

A self imposed budget is a budget made by the manager and not imposed from above.

This is recommended when the budget is used to evaluate the manager’s performance.

Question 12

What are some advantages of self-imposed budgets?

Answer 12

• Budgets estimates prepared by front-line managers are more accurate and reliable compared to top managers who have less inttimate knowledge of markets and operations.
• Motivation is higher when individuals participate in setting their own goals
• Less excuses, if a manager fails to meet a budget from above, he can always say it was unrealistic, when he/she makes it, this excuse is not available

Question 13

Give some examples of cash outflow timing?

Answer 13

• Raw materials: before the production
• Wages/salaries: in the same time period with production
• Overheads: some time after the beginning of production
• Shipping costs: after the sale of the production

Question 14

What is a line of credit?

Answer 14

It is a prearranged loan with no specific asset backing the loan in case of default.

Question 15

What is a master budget?

Answer 15

A master budget represents several budgets which form an integrated business plan

Question 16

What are the elements of the master budget?

Answer 16

1. The cash budget
2. The budgeted income statement
3. The budgeted balance sheet

Question 17

What are the purposes of a budget?

Answer 17

1. Planning: developing goals and preparing various budgets to achieve those goals
2. Control: taking the steps required to ensure that all parts of the organization are working together to achieve the goals set

Question 18

What is the production budget?

Answer 18

It is a document wihch lists the number of units that must be produced to satisty sales needs

Question 19

What is the manufacturing overhead budget?

Answer 19

It lists all costs of production other than direct materials and direct labor.