Unit 2 extension pt2

Question 1

What is budgeting

Answer 1

Budgeting is the process of predicting/estimating the financial consequences of future events.

Question 2

What are the benefits of budgeting>?

Answer 2

• Assists planning by establishing desired outcomes so that specific actions can be taken to ensure the goals are achieved
• Assists in control as it gives a roadmap for achieving goals laid out in the budget and provides a method of holding staff accountable when targets are not met
• Aids decision-making by providing a standard (benchmark) against which actual performance can be measured

Question 3

Budgeted reports

Answer 3

Budgeted cash flow statement
Budgeted income statement
Budgeted balance sheet

Question 4

Uses of budgeted cash flow statement: planning

Answer 4

Allows management to plan desired outcomes by setting goals

Allows management to put specific actions in place to ensure goals are met

Allows management to prepare in advance for an expected increase or decrease in cash

Question 5

Plans for net decrease in cash

Answer 5

Implement strategies to increase cash sales

Implement strategies to increase accounts receivable (e.g offer a bigger discount)

Reduce cash payments for expenses (use credit)

Ask for capital contribution

Defer purchase for a NCA or finance purchase with a loan

Defer loan repayments for existing loans

Ask owner to take less drawings

Organise (or extend) an overdraft facility

Question 6

Planning for a net increase in cash

Answer 6

Purchase more NCA or upgrade

Increase loan repayments to repay debt quicker

Advise owner they can increase cash drawings

Expand operations by opening a new store, increasing advertising, expanding online presence

Question 7

Use of budgeted cash flow statement: control

Answer 7

1) Provides framework or roadmap for the budgeted period, setting targets against which progress can be monitored to ensure the business is on track and adjustments can be made if necessary

2) At the end of the period, drawing up the variance reports presents variations that can be held to account and results provide them with target for the future

Question 8

Use of budgeted cash flow statement: decision-making

Answer 8

Comparing budgeted reports against actual reports allows for a comparison against set benchmarks and for problem areas to be identified and addressed in the next budgeting process

Question 9

Ethical considerations

Answer 9

1) Re-rostering staff leaving with less work = lower take home pay = financial stress and pressure on the families of employees

2) Reducing outflows by buying cheaper packaging that creates more waste through non-biodegradable materials - negative impact on the environment