Kaplan 6: Cash Forecasts

Question 1

Will be required to prepare a cash forecast in MABU exam. From budget data making allowance for time lags or assumptions about changes in debtor, creditor & inventory balances

In the exam you will have to prepare a CFF from the Operating Budger and SFP assumptions

Answer 1

Could also be asked to analyse a CFF into shorter controol periods allowing for time lags

Question 2

Purpose of the cash budget

Answer 2

1. Ensure various items of Income & Expenditure will result in cash flows which will enable the org to pay it’s way at all times.
2. Where the CF over the year as a whole is OK but there are intermediate periods of difficulty in financing ops, to give a basis from which the timing of particular items can be re-planned.
3. Where CF proves inadequate to finance the plan as originally envisaged, to give the FC an opportunity to seek sources of additional capital. (If budget cannot be financed, must be revised)
4. Like any other budget, to provide a basis for control during the forthcoming year

Question 3

What to remember in CFF task

Answer 3

Depreciation should be stripped out.

If doing materials where it’s complicated take time. Draw out months along top and use equation P=Usage+CI-OI (adapted from OI+P-CI=CoS)…. and DON’T FORGET that won’t be PAYING in same month which is why you work out more months than doing CFF for…. first you work out the PURCHASES for each month and then need another row at bottom showing when the CASH for those purchases will go out for the CASH-flow.

(I got confused when couldn’t work out purchases for Feb ..because wasn’t given Sales for March to base the CI on… but of course I didn’t need to know the Feb purchases because CFF was up to Feb BUT Feb purchases don’t appear because they appear in March CFF 2 months credit later… The December purchases go in the Feb CF !!!)