S4 BM - Cash Budgets

S4 BM - Cash Budgets

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Multiple Select

Which is true of a cash budget?

(choose all the correct answers)

• shows a detailed financial plan of action for a future period

• shows all future RECEIPTS and all future PAYMENTS

• shows profit/loss made by a business

• shows all past RECEIPTS and past PAYMENTS a business had made

Multiple Choice

Receipt or Payment?

Electricity bill

• Receipt

• Payment

Multiple Choice

Receipt or Payment?

Government grant

• Receipt

• Payment

Multiple Choice

Receipt or Payment?

Wages

• Receipt

• Payment

Multiple Choice

Receipt or Payment?

Rent of premises

• Receipt

• Payment

Multiple Choice

Receipt or Payment?

Sales

• Receipt

• Payment

Multiple Select

What are the advantages of preparing a cash budget?

(Choose all that apply)

• Identifies when there will be a shortage of cash.​

• Shows the profit/loss made by the business.

• Helps managers to make informed decisions.​

• Targets can be set.​ ​ ​

Multiple Choice

This is the cash left at the end of the month after all payments have been taken away from the business receipts. ​

• Opening Balance

• Receipts

• Payments

• Closing Balance

Multiple Choice

This is the amount of money you have available at the beginning of the month.

• Opening Balance

• Receipts

• Payments

• Closing Balance

Multiple Choice

This is a list of all the money coming into the business such as sales or rent received.

• Opening Balance

• Receipts

• Payments

• Closing Balance

Multiple Choice

This is the same amount as the closing balance from the month before. ​

• Opening Balance

• Receipts

• Payments

• Closing Balance

Multiple Choice

This is a list of all money you expect to go out of your business such as rent, wages or electricity.

• Opening Balance

• Receipts

• Payments

• Closing Balance

Multiple Choice

Closing Balance = Opening Balance + Receipts - ??

• Payments

• Closing balance

• Receipts

• Profit/loss

Complete Tasks on Showbie

Multiple Select

Why do cash-flow problems occur?​

(choose all the correct answers)

• high sales

• ​ too much money tied up in inventory​

• customers taking too long to pay their bills​

• suppliers not allowing credit or a limited credit period​

Multiple Choice

Problem: over-investment in new assets such as machinery or equipment.

What is a suitable solution?

• Lease equipment instead of buying it outright

• Increase advertising or sales promotion

• Offer discounts to customers for paying up front or paying for goods quickly ​

• Apply for a loan or overdraft from the bank

Multiple Choice

Problem: customers are taking too long to pay back the money they owe.

What is a suitable solution?

• Lease equipment instead of buying it outright

• Increase advertising or sales promotion

• Offer discounts to customers for paying up front or paying for goods quickly ​

• Apply for a loan or overdraft from the bank

Multiple Choice

Problem: we need to buy a piece of equipment next month but our closing balance will be negative.

What is a suitable solution?

• Sell assets that you are not using anymore

• Increase advertising or sales promotion

• Offer discounts to customers for paying up front or paying for goods quickly ​

• Apply for a loan or overdraft from the bank

Multiple Choice

Problem: we have money tied up in a large amount of inventory that we need to shift before it goes out of date.

What is a suitable solution?

• Sell assets that you are not using anymore

• Increase advertising or sales promotion

• Offer discounts to customers for paying up front or paying for goods quickly ​

• Apply for a loan or overdraft from the bank

Fill in the Blank

From the cash budget, calculate the missing figure (i)

Fill in the Blank

From the cash budget, calculate the missing figure (ii)

Open Ended

(a) (i) From the cash budget, identify 2 cash flow problems. (2 marks) 

(ii) Describe how the problems identified in part (a)(i) could be solved. (4 marks) 

(a) (i) From the cash budget, identify 2 cash flow problems. (2 marks) 

• Increasing wages 

• Increasing purchases 

• £20,000 spent on capital expenditure 

• Negative closing balance in May and June 

(ii) Describe how the problems identified in part (a)(i) could be solved. (4 marks) 

• Do not allow overtime 

• Reduce the number of workers to reduce wages. 

• Find a cheaper supplier to reduce cost of purchases. 

• Negotiate discounts for bulk buying or prompt payment 

• Purchasing the van on hire purchase to spread payments 

• Lease or rent the van rather than buying it outright 

• Arrange for an overdraft to cover negative closing balance. 

• Take out a bank loan to boost receipts 

Open Ended

Explain the purpose of preparing a cash budget. (3 marks) 

Explain the purpose of preparing a cash budget. (3 marks)

• can be used as a target - this means the business may be able to plan 

• control spending 

• ensure overspending does not occur 

• highlights any period of surplus - this means the business is able to plan better use of available cash 

• highlights any period of shortfall - this means the business is able to arrange a source of finance 

• highlights any increases in expenses over a period of time – this means the business is able to take corrective action 

• promotes better decision making - this means the business is able to plan future direction of the business