Lecture 2

Question 1

What is cash budget?
What do you not include is cash budgets?
What is recievables?
What is payables?

Answer 1

• shows that money comes in and out.
• do not include depreciation
• receivable = when your receiving money
• payables = when you owe people money.

Question 2

Sir john ( cash budget example )
Sir john starts with 100,000 in bank
- sales
September = 80,000
October = 90,000
November = 120,000
December = 150,000

Customer payments
50% pay immediately
50% pay one month later

Materials payment
- paid 2 months later
Pay for august matierls in October 30,000
Pay for September matierls in November 40,000
Pay for October mateirlas in decmeber 50,000
Wages and overhead
- paid immediately

Car purchases
1st October = buy a car for 20,000
31st decmeber = sell car for 17,000

• prepare cash budgets for October, November and December.

Answer 2

Step 1. Calculate receipts ( customer payments)
October = 90,000 x 50% = 45,000 immediately
September sales : 80,000 x 50% =40,000
40+45 =85,000 total recipiects

November = 120,000 x 50% = 60,000
Last month sales: 90,000 x 50% =45,000
60+45=105,000

December = 150,000 x 50% = 75,000
Last month sales = 120,000 x 50% =60,000
75,000 + 60,000=135,000

Step 2: material payments
October = 30,000 for august materials
November = 40,000 for September materials
Decmeber = 50,000 for October materials

Step 3 : wages and overhead paid immediately
October : 35,000 + 10,000 =45,000
November: 40,000 + 12,000 =52,000
Decmeber : 45,000 + 14,000 =59,000

Step 4 : other information
- car purchases 20,000
- car sales 17,000 received in decmeber

Question 3

Part 2: cash budgets
Like how do you structure it
- how do you workout opening balance
- receipts
- payments
- net cash flow
- closing balance

Answer 3

Opening Balance: is the closing balance from last month .
Receipts : make sure you put all the recipients for all the month and add any money that you made
Payments: all the payments you need to pay for that month
Net cash flow: receipts - payments
Closing balance : opening balance + net cash flow.

Question 4

What do you do if you have short term deficit ?

What is long term deficit?

What is short term surplus?

What is long term surplus?

Answer 4

Short term deficit = arrange overdraft

Long term deficient = raise long term fiancé

Short term surplus = invest in short securities like boost sales

Long term surplus = expand business

Question 5

Types of budgeting: part 1
1. Incremental

2. Zero -based budgeting
3. Participative
4. Imposed

Answer 5

1. Incremental : start with last year budget
   Advantage : quick and easy
   Disadvantage : continues past mistakes
2. Zero based budgeting: starts from zero
   Advantage : removes slacks and waste
   Disadvantage : takes a lot of time
3. Participative : bottom up budgeting
   Employees help set their own
   Advantage: more accurate
   Disadvantage : takes a long time to do
4. Imposed budgeting : top down budgeting
   Managers do budgeting
   Advantage : faster to do
   Disadvantage : staff feel no control

Question 6

Part 2 :
What is a rolling budget?

What is beyond budgeting?

Answer 6

1. Rolling : keeps updating the budget
   Good: always up to date
   Cons : time consuming
2. Beyond budgeting: get rid of old style budgeting
   Advantage : encourages innvotion
   Disadvantage : managers resist change.