Lecture 10

Question 1

Definition of budgeting 

Answer 1

A budget is a simulation – a financial plan estimating:
- Expected cash in flow and outflows
- Financial position for a given period 
- based on actual or assumed data

It is not a forecast or projection 

Question 2

The budgeting cycle 

Answer 2

1. Established mission and strategic goals.
2. Identify options and select plans.
3. Prepare budgets.
4. Track actual performance.
5. Identify variance.
6. Revised plans or budgets as needed.
7. Exercise control. 

Question 3

Cash budget components 

Answer 3

Receipts (in flows) - cash sales, collections from receivables, share capital
payment (outflows) - pay bills, salaries, rent, overheads, capital purchases
opening balance - cash brought forward from previous period
closing balance  - cash position at end of period 

Question 4

ClosingBalance 

Answer 4

Closing balance = opening balance + cash inflows - cash outflows

Question 5

What is a budget? 

Answer 5

A simulation of expected financial performance using assumptions or data 

Question 6

Is a budget the same as a forecast? 

Answer 6

No – cost products, budget simulate expected financial activity 

Question 7

In cash budgeting, what happens to unpaid credit sales? 

Answer 7

They recorded as receivables and included as future cash in flows 

Question 8

What does a negative closing balance indicate? 

Answer 8

A cash shortfall – the company will require financing 

Question 9

What’s the risk of rising costs and delayed receipts in a budget? 

Answer 9

Cash deficits may grow, requiring earlier or greater external financing