Cash Management and Budgets OT Flashcards
Three reasons for holding cash
Transaction motive
Precautionary motive
Speculative motive
What is transaction motive?
Carry a certain level of cash that’s needed to pay the bills
What is precautionary motive?
Hold extra cash to be safe to cover against unexpected needs
What is speculative motive?
Hold extra cash to take advantage of “special deals”
If we cut down on inventory, defer CAPEX, defer dividend payment, use short-term borrowing
Increases cash
Non-current assets sold to leasing company and then rent them?
Helps generate cash
Cash surpluses (short or long-term)?
For the short-term
Investing in blue chip?
The cash should be relatively safe
When there’s a lot of suplus cash?
Should pay it back to shareholders to satisfy them
What are cash budgets?
How muchc ash we’ll receive and what we expect what will happen to bank balance. Identify cash surpluses and deficits
What is included in receipts in a cash budget (what we receive)?
Cash sales and credit sales
What is included in payments in a cash budget (what we pay out)?
Purchases
Wages
Overheads
Dividends
Capex
What is meant by two months credit on payment?
Pay two months later
Net surplus/deficit?
Receipts - Payments. Positive is surplus, negative is deficit.
This is then added to the cash balance b/f
Buying extra effective machines?
SHort-term loss, increase in cash flow in medium to long term
