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level: Cash Budgeting

Questions and Answers List

level questions: Cash Budgeting

QuestionAnswer
how does a business generate cash?selling products/services receiving a bank loan/grant issuing shares (for Ltds only) selling a non-current asset it no longer needs (eg delivery van or property)
what do businesses spend cash on?purchasing raw materials from supplier paying staff wages paying utility bills (eg electricity, internet) paying insurance paying rent/mortgage advertising costs
what is meant by cash budgets?a cash budget shows a forecast of how much money the business thinks will be coming in and going out each month in the course of the year ahead the final figure at the end of each month represents how much money the business forecasts it will have left (closing balance)
do cash budgets have anything to do with profit?no do not mention "profit" in your answer when talking about cash budgets
name some cash flow problemsdemand falls for products/services and so sales may fall increase in charges from utility supplier (electricity, gas) supplier increasing prices of raw materials bank charges due to late loan/overdraft payments investment in new technology required staff absence leading to extra staff cover being required
name cash flow solutionslaunch an advertising campaign to remind customers about your product to increase sales switch utility supplier to find a better deal negotiate with supplier for a better deal for raw materials/ or switch to a cheaper supplier have a meeting with the bank to discuss charges and arrange a payment plan pay for new technology with hire purchase so full price is not paid up front (or leasing) train staff to be multi skilled so they can cover future staff absence
what is meant by receipts in cash budgetsmoney coming into the business
What terminology describes all the money coming into and going out of a business?cash flow
What term do we use to describe all the money going out of a business?payments
What outcome would you expect if more cash is leaving a business than coming into it?A closing balance showing a deficit
what are the benefits of preparing a cash budget?it can identify times where there may be a shortage of cash, allowing the business to plan ahead and arrange extra funding, eg bank overdraft can help to regulate expenses. any months where expenses are high will be highlighted by a cash budget it will show clearly where a business has more cash than expected or less than expected. This will allow a business to more efficiently plan and make better decisions
what is this an example ofcash budget