Session 5 Flashcards
What is the budget cycle?
Plan implement monitor control
What is the difference between the actual figure and the budgeted figure called ?
Variance
What is it called If the variance is good news
Favourable
What is it called If the variance is bad news
Adverse
What may be a reason for a shortfall in receipts from debtors
The credit controller may have been off sick
We may have extended our payment terms
Why may we have had a shortfall in cash sales?
Sales manager may have been absent
Machinery may have broken down
Depending on business, competitors,

Why may we have an increase in payments to creditors?
 We may be making the most of prompt payment discount
 Increase demand, therefore increased inventory

Why may we have an increase in capital expenditure?
 a machine may be broken, which requires replacement
Why may there be a decrease in wages and salaries?
Employee sickness
Why may there be a decrease in general expenses?
Better expense management
Should’ve brought more so will see a change/increase/reflection next month
What is the formula to calculate the percentage difference? When you are working with variance in budgets

Variance / budget X 100 = % amount difference/out by
When we think about variances, what do we need to consider?
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?
If labour cost increase is the cause of the variance, what possible action could we take?
Labour cost increase to staff taking longer to perform, therefore training may be required to increase efficiency
If a purchase price increase is the cause of the variance what action could we take?
Look for another supplier
If premature payments are the cause of the variance, what action could we take?
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
If purchase volumes increase is the cause of the variance, what action could we take?
Purchase volumes increase may be due to low quality items, therefore more are required
This may be due to demand of our sales team
What if the sales volume reduced is the cause of the variance and what action could we take?
Competitors
Reduce selling price - ours maybe to high
Do more marketing
What may be the reason for receipts from cash sales delayed?
And what action, could we take?
This may be due to cheques not been cashed
Cheques may be left in the safe
What is liquidity of a business?
Liquidity of a business is the availability of cash or, assets which can easily be turned into cash
Why is liquidity management vital?
 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)
What three things do liquidity management include?
 Management of inflow and outflow of cash
The arrangement of finance
Appropriate investments of cash surplus, including company policies
To ensure good liquidity management businesses need to have a good understanding of the financial environment. The business operates in what are these two?
The banking system
UK money markets
What is the bank of England?
The U.K.’s central bank
What is the Bank of England responsible for?
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)
