5. Cash Budgets

Question 1

Whats the importance of cash?

Answer 1

lack of cash starve the business of its ability to meet its short-term obligations

Question 2

what is cash flow?

Answer 2

cash flow cycle demonstrates the movement of cash in and out of the business

Question 3

what is a budget?

Answer 3

a statement of anticipated future expenditure

Question 4

what can a budget be used for?

Answer 4

-improved decision making
-monitoring and control
-to set targets
-to delegate authority
-to plan ahead

Question 5

what are cash flow budgets used for?

Answer 5

to highlight potential shortages or surpluses of cash resources that could occur

Question 6

what do cash flow budgets show?

Answer 6

-the cash available
-the money expected to come in
-the expected expenditure
-any cash flow problems

Question 7

what does cash flow budgets help a business to do?

Answer 7

-make decisions
-forecast of negative cash balances alert when a loan or overdraft may be necessary
-forecast of cash surpluses allow to plan for investments such as purchase new machinery

Question 8

what are the main benefits to management?

Answer 8

-planning
-organising
-command
-coordinate
-control
-delegation
-motivation

Question 9

what are some sources of cash flow problems?

Answer 9

-low sales
-typing up too much cash in stock
-allowing customer too much credit
-customers not paying within agreed time
-borrowing too much/high interest payments
-purchasing items at wrong time
-paying trade payables back to quickly
-paying too much for expenses

Question 10

what are some solutions to cash flow problems?

Answer 10

-increased sales (promotion, BOGOF discounts)
-sell unnecessary fixed assets
-encourage overdue customers to pay now
-arrange longer credit with suppliers
-reduce outgoings

Question 11

what are some problems that low cash flow leads to?

Answer 11

-cant pay wages
-need new equipment
-can’t renew stock
-cant pay bills
-need new premises
-expenses too high