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Cash And Financial Management > Session 5 > Flashcards

Session 5 Flashcards

1
Q

What is the budget cycle?

A

Plan implement monitor control

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2
Q

What is the difference between the actual figure and the budgeted figure called ?

A

Variance

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3
Q

What is it called If the variance is good news

A

Favourable

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4
Q

What is it called If the variance is bad news

A

Adverse

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5
Q

What may be a reason for a shortfall in receipts from debtors

A

The credit controller may have been off sick

We may have extended our payment terms

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6
Q

Why may we have had a shortfall in cash sales?

A

Sales manager may have been absent

Machinery may have broken down

Depending on business, competitors,


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7
Q

Why may we have an increase in payments to creditors?

A

 We may be making the most of prompt payment discount

 Increase demand, therefore increased inventory



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8
Q

Why may we have an increase in capital expenditure?

A

 a machine may be broken, which requires replacement

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9
Q

Why may there be a decrease in wages and salaries?

A

Employee sickness

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10
Q

Why may there be a decrease in general expenses?

A

Better expense management

Should’ve brought more so will see a change/increase/reflection next month

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11
Q

What is the formula to calculate the percentage difference? When you are working with variance in budgets


A

Variance / budget X 100 = % amount difference/out by

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12
Q

When we think about variances, what do we need to consider?

A

How significant they are

Do we know why? Is there a story given, for example, machinery, broken?

Will it correct itself over time/temporary?

Can we control it?

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13
Q

If labour cost increase is the cause of the variance, what possible action could we take?

A

Labour cost increase to staff taking longer to perform, therefore training may be required to increase efficiency

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14
Q

If a purchase price increase is the cause of the variance what action could we take?

A

Look for another supplier

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15
Q

If premature payments are the cause of the variance, what action could we take?

A

This may be to make the most of prompt payment discount

There may be a new starter in the trade payables purchase ledger control account

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16
Q

If purchase volumes increase is the cause of the variance, what action could we take?

A

Purchase volumes increase may be due to low quality items, therefore more are required

This may be due to demand of our sales team

17
Q

What if the sales volume reduced is the cause of the variance and what action could we take?

A

Competitors

Reduce selling price - ours maybe to high

Do more marketing

18
Q

What may be the reason for receipts from cash sales delayed?
And what action, could we take?

A

This may be due to cheques not been cashed

Cheques may be left in the safe

19
Q

What is liquidity of a business?

A

Liquidity of a business is the availability of cash or, assets which can easily be turned into cash

20
Q

Why is liquidity management vital?

A

 Liquidity management is vital to ensure that there is no cash, flow problems and to ensure that the business remain solvent (the ability to pay money on time to continue trade)

21
Q

What three things do liquidity management include?

A

 Management of inflow and outflow of cash

The arrangement of finance

Appropriate investments of cash surplus, including company policies

22
Q

To ensure good liquidity management businesses need to have a good understanding of the financial environment. The business operates in what are these two?

A

The banking system

UK money markets

23
Q

What is the bank of England?

A

The U.K.’s central bank

24
Q

What is the Bank of England responsible for?

A

It’s the banker to the government

It’s the banker to other banks

It produces notes and coins

It tries to influence interest rates  in aim to control inflation (they can help with it)

25
Q

How does the Bank of England support of the Banks?- what do they do for one another?

A

Provides one another with liquidity and acts as a cushion

Provides a failsafe for Banks

26
Q

What are UK money markets?

A

Trading market for borrowing and investing money

27
Q

What are the types of UK money markets in tradable securities?

A

 Treasury bills – UK government – 91 days

 Gilts – UK government – Government security/certificate

Local authority bills – local authorities – short-term

Euro securities – EU central banks and government – securities with EEA

Certificates of deposit – Banks – sort term certificates

Bills of exchange – companies – short-term bells, normally guaranteed by Banks

Corporate bonds – companies – death certificates

28
Q

What is monetary policy?

A

Monetary policy involves controlling the money circulating in the economy

29
Q

What should a long-term affect monetary policy do

A

Maintain price stability – inflation target set by government

Achieve stable employment

Economic growth (GDP up)

Avoid recession (GDP down for two consecutive quarters)

30
Q

What does GDP stand for?

A

 Gross domestic product, i.e. UK production

31
Q

What is quantitive easing

A

Quantitive easing, is a method of increasing the amount of money in the economy (without actually making more money, physically like printing notes)

32
Q

What is an example of quantitive, easing

A

The bank of England will give an insurance company £XXXXX for some gilts (secure, high quality assets) so that the insurance company will have more liquid money to spend. When the economy picks up, the government will sell the girls back to the insurance company, and they will return the £XXXXX

33
Q

What is a guilt?

A

Secure high quality assets

(Pretend money to help others)

34
Q

How will the government and stabilise the economy?

A

By controlling inflation through interest rates

35
Q

What is the effect of a rise in interest rates on a business?

A

The cost of borrowing will increase

Rise in interest rates, often associated with rise of inflation

If interest rates increase value of currency will tend to rise in short-term meaning, exports are more expensive and imports are cheaper

36
Q

What is the effect of a fall in interest rates on a business?

A

Cost of borrowing will decrease

Cash And Financial Management (7 decks)

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