U2- Cash Budgeting

Question 1

Describe the cash flow diagram

Answer 1

Buy resources

Use resources to make goods and services

Sells goods and service to generate cash

Re-invest cash in the business

(Repeat the cycle)

Question 2

What is liquidity?

Answer 2

The provision of or the ability to have access to cash or near cash assets to meet the everyday commitments of the business

Question 3

What is a cash flow statement?

Answer 3

Produced as part of the year end accounts of a limited company

It shows the movements of cash in and out of the business over the course of the financial year

Cash in this context can mean money in the bank and other cash equivalent assets

It can provide an easy means by which to track the movements of cash in the business

Question 4

What are cash equivalent assets?

Answer 4

Assets that can be converted quickly into cash if required

Question 5

Name 4 cash inflows

Answer 5

Loan received

New capital invested

Profits

Sale of inventory

Question 6

Name 4 cash outflows

Answer 6

Loan repaid

Losses

Purchase of inventory

Increase in trade receivables

Question 7

Give 5 cash flow problems

Answer 7

Overtrading

Too much inventory

Low profits

Allowing too much credit

Seasonal demand

Question 8

What are 6 potential solutions to cash flow problems?

Answer 8

Better planning

Produce accurate budgets

Constantly revise and compare budgets

Have an overdraft facility or other short term finance set up in advance

Find a cheaper supplier

Sell unnecessary fixed assets