Finance - Cash Budget

Question 1

What is the purpose of a cash budget?

Answer 1

To help manage cash flow and prepare for the future

Question 2

4 advantages of a cash budget?

Answer 2

• Can show if the business has a surplus
• Can show if the business has a deficit
• Can show if additional finance is required
• Can control expenses by highlighting periods when they could be high.

Question 3

• What is a surplus?
• What is a deficit?

Answer 3

• Surplus - More cash expected to come into the business than to go out
• Deficit - More cash expected to go out of the business than to come in

Question 4

Define the following terms:
* Opening balance
* Receipts
* Sales revenue

Answer 4

• Opening balance - cash available at the start of a period
• Receipts - Money expected to come in
• Sales revenue - Income received by the business from selling its goods

Question 5

Define the following terms:
* Payments
* Purchases
* Closing balance

Answer 5

Payments - All money expected to go out of the business
Purchases - Amount of inventory purchased in the current year
Closing balance - Money left at the end of the month that makes the opening balance for the next month

Question 6

Describe 4 actions that can be taken by an organisation to reduce costs

Answer 6

1. Change to a cheaper supplier
* Business should look to see if they can get bulk buying discounts
* Trade credit

2. Reduce wages
* Cut overtime
* Release temporary staff

3. Reduce utility usage
* Switch to energy saving lights
* Fit sensors to switch lights off after a period

4. Reduce advertising/ switch to cheaper methods
* Business should set up their own website
* Send adverts through email
* Advertise in newspapers rather than TV