Lecture 6b- Financial planning/ cash budgets

Question 1

What is financial planning?

Answer 1

It is the forecasting of cash received and cash payable of incomes and revenues and of the resulting state of financial health.

Question 2

What are the two approaches to forecast scenarios?

Answer 2

Scenario analysis
Sensitivity analysis

Question 3

What is scenario analysis?

Answer 3

looking at the best/worst case scenarios

Question 4

What is sensitivity analysis?

Answer 4

analysing the effects of changes in one variable

Question 5

What are the 4 steps of the planning cycle?

Answer 5

1. Original forecast
2. Measure actual performance
3. Analyse deviation from original
4. Feed new info into next forecast

Question 6

What is the external use of financial planning/cash budgets?

Answer 6

Procurement of finance

Question 7

What is the internal use of financial planning/cash budgets?

Answer 7

Management accounting i.e. internal control

Question 8

What is the key factor of a cash budget?

Answer 8

Demand

Question 9

How can we forecast demand for existing products?

Answer 9

Time series

Question 10

How can we forecast demand for new brands or new variants of established products?

Answer 10

Previous launch data/Regression

Question 11

How can we forecast demand for new products, identified target market?

Answer 11

Survey of buyer intentions the 90/30 rule

Question 12

In a cash budget what is the first and second quarter?

Answer 12

1st: Jan-march
2nd: April-June

Question 13

In a cash budget what are the 3rd and 4th quarter?

Answer 13

3rd: July-September
4th: October-December

Question 14

What are Drawings on a cash budget?

Answer 14

the amount taken out of the business for the owner’s personal use

Question 15

How do you work out the balance brought forward?

Answer 15

This is the opening cash balance at the start of the period.
It’s the same as the closing balance (C/F) from the previous period.
It’s the money you already have at the start of the month.

Question 16

How do you calculate the balance carried forward?

Answer 16

Balance Brought Forward + Total Receipts – Total Payments

Question 17

What are cash sales?

Answer 17

made when cash is received at same time as the goods or services are delivered to the customer

Question 18

What are credit sales?

Answer 18

when goods or services are delivered before payment is received from the customer

Question 19

What is a structure of a cash budget

Answer 19

1. Receipts e.g capital, receipts from cash sales, receipts from credit sales
2. Total receipts
3. Payments- expenses
4. Total payments
5. Net receipts
6. Balance brought forward
7. Balance carried forward