finance: cash budgeting

Question 1

cash budget

Answer 1

this is a forecast of all the the money coming into and going out of the business over a period of time

Question 2

potential cash budget problems

Answer 2

• low sales lower money coming into business
• too much money tied up in stock
• owner taking out too many personal drawings

Question 3

solutions for a poor cash budget

Answer 3

• organise a source of finance
• chase in outstanding bills
• lease equipment instead of buying

Question 4

purpose of a cash budget

Answer 4

• allows the firm to spot surplus cash
• useful document to apply for a bank loan
• allow firms to set targets

Question 5

2 types of financial statements

Answer 5

• income statement
• statement of financial position

Question 6

income statement

Answer 6

calculates:
1. gross profit
2. profit for the year

Question 7

sales

Answer 7

money made from the selling of products

Question 8

costs of sales

Answer 8

the cost of all the purchases the firm has made over the previous trading year

Question 9

purchases

Answer 9

the raw material and the products the firm buys

Question 9

opening stock

Answer 9

the stock the firm has at the start of the financial year

Question 10

closing stock

Answer 10

the stock the firm has left at the end of the year, which will be carried over to the next year

Question 11

how to calculate cost of sales

Answer 11

cost of sales = opening stock + purchases - closing stock

Question 12

how to calculate gross profit

Answer 12

gross profit = sales - cost of goods sold

Question 13

expenses

Answer 13

costs such as lighting, rent, advertising, delivery and loan repayments

Question 14

how to calculate profit for the year

Answer 14

profit for the year = gross profit - expenses

Question 15

purpose of an income statement

Answer 15

• to show net sales
• for legal reasons
• to compare with previous years

Question 16

statement of financial position

Answer 16

shows the value of a business at a particular point in time

Question 17

non current assets

Answer 17

these are items which the business owns and will keep for more than one year

Question 18

current assets

Answer 18

these are items which the business owns and will keep for less than one year

Question 19

current liabilities

Answer 19

these are items which the business owes and will pay for in the short-term

Question 20

working equity

Answer 20

this shows the difference between current assets and current liabilities

Question 21

purpose of a statement of financial position

Answer 21

• informs decision making
• can be used to calculate ratios
• compare with previous years