Cash budgeting Flashcards
What is a cash budget
A cash budget is a forecast of all the money coming into and going out of the business over a period of time.
Mostly a year.
What are Payments
These are costs the business has to cover and so is money leaving the business
What is the sub total
receipts - payments
What is the opening period
The money carried over from the previous month
How is the closing balance calculated
sub total + opening balance
What are some cash budget problems which could affect cash flow.
Low sales
Personal drawings
Money tied in stock
Not chasing unpaid bills
Borrowing at high interest rate
Unanticipated bill
What are personal drawings
Small amounts of cash the owner will take from the till for personal reasons
Solutions for a poor cash budget to improve cash flow
Organising an overdraft or bank loan
Negotiate better discounts with suppliers
Lease equipment instead of buying
Extend credit period with suppliers
Offer discounts to customers
Shorten time between between buying and selling.
What are some reasons for a cash budget
Firms can spot cash surpluses and shortages
Used to appeal for a bank loan
Allows firms to set targets
Shows forecasting ability.
