teacher 1 - task 12

Question 1

Budgets

Answer 1

Normally relates to the current financial year only.

Not normally in the longer term interest of the business

Question 2

3 parts of effective budgeting

Answer 2

-managers set demanding targets for employees to encourage work to be efficient as possible
- Managers review budgeting frequently
- Should be challenging but achievable

Question 3

effective budgeting definition

Answer 3

budgets constructed to assist the business in achieving its financial and wider objectives

Question 4

3 reasons a manager might forecast the cash flow for a business

Answer 4

• to support applications for loans (mainly for long term loans like a property if they have planned more likely to receive the loan)
• To help avoid unexpected cash flow crises (most businesses fail cause of poor cash flow so good to plan ahead)
• starting point for judging decisions on special orders or other stuff

Question 5

Cash flow forecasts definition

Answer 5

State the inflows and outflows of cash that the managers of a business expect over some future period

Question 6

3 sections of a cash flow forecast

Answer 6

• Cash in
• Cash out
• Net monthly cash flow

Question 7

1st section (cash flow in)

Cash flow forecast

Answer 7

usually on monthly basis
- cash sales
- credit sales - customer given time to pay (30,60 or 90 days)

Question 8

2nd section cash flow out

cash flow forecast

Answer 8

-raw materials
-wages
-other costs (fuel…)

Question 9

3rd section net monthly cash flow

cash flow forecast

Answer 9

net monthly cash flow = total outflow - total inflow
-opening balance - balance at start of every month (same figure as last month’s closing balance)
-closing figure = opening figure + net monthly flow
(opening balance for next month)

Question 10

payables definition

Answer 10

the amount of time taken by a business to pay its suppliers and other creditors, (normally expressed in days)

Question 11

Receivables definition

Answer 11

time taken by a business’s customers (or debtors) to pay a business for the products that it has supplied. (Normally expressed in days)

Question 12

Trade credit definition

Answer 12

Offered when purchasers are allowed a period of time (normally 30, 60 or 90 days) to pay for a product they have bought

Question 13

Useful way of analysing a business’s cash position

Answer 13

compare the number of days for payables and receivables,

receivables > could mean cash flow trouble

because outflow of cash before receiving inflow of cash, shortage could result

Question 14

break even output

Answer 14

level of output or production at which total costs exactly equal revenue from sales

Question 15

contribution

Answer 15

The difference between revenue and variable costs