Financial Forecasting

Question 1

What is a cash budget?

Answer 1

a cash budget is a projection of a company cash receipts and disbursments over some future period of time.
prepared annually subdivided into months.
determines the amount of short term funding required.
indicates cash surplus

Question 2

what steps are involved in preparing a cash budget?

Answer 2

1. Estimation of cash receipts using sale forecast
2. schedule of disbursements
3. determination of a desired cash balance at beginning of month.

Question 3

Discuss why would a firm experience cash flow difficulty immediately after a good sales period?

Answer 3

When the stock of goods or inventory is sold then it should refill for which they need to purchase the good by using cash.
Many sales may have been conducted on credit (accounts receivable basis) and collection may not have yet been received.
In addition, accounts payablae may become due before cash is actually received.

Question 4

what is the difference between net income and net cash balance?

Answer 4

Good purchased and sold on credit
Deferred expenses e.g. deferred taxes
Prepaid expenses
Depreciation and Appreciation of assets