S4 BM - Cash Budgets

S4 BM - Cash Budgets

​

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 Blanks

Fill in the Blanks

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