Business Finance U1 Cash Budget Quiz1

What is the primary objective of creating a cash budget for a business?

• To eliminate all debts

• To increase sales revenue

• To reduce employee salaries

• To forecast cash inflows and outflows

Answer explanation

The primary objective of creating a cash budget is to forecast cash inflows and outflows. This helps businesses manage their liquidity and ensure they can meet financial obligations.

Which of the following is NOT a component of a cash budget?

• Receipts

• Payments

• Profit Margin

• Opening Cash Balance

Answer explanation

The cash budget includes components like Receipts, Payments, and Opening Cash Balance. Profit Margin, however, relates to overall profitability and is not a direct component of a cash budget.

What does the term "Net 30" mean in credit terms?

• A 30% discount is offered if paid within 30 days

• Payment is due within 30 hours of the invoice date

• Payment is due within 30 business days of the invoice date

• Payment is due within 30 calendar days of the invoice date

Answer explanation

The term 'Net 30' means that payment is due within 30 calendar days of the invoice date. This distinguishes it from other terms that may specify business days or discounts.

Which of the following is a way to manage a cash shortfall?

• Increasing employee salaries

• Postponing a major purchase

• Increasing inventory purchases

• Offering longer credit terms to customers

Answer explanation

Postponing a major purchase helps conserve cash and manage a shortfall effectively, while the other options would likely exacerbate the cash flow issue.

In the context of cash budgeting, what does the closing balance represent?

• The profit earned in a period

• The total expenses incurred in a period

• The total revenue generated in a period

• The amount of cash available at the end of the reporting period

Answer explanation

The closing balance in cash budgeting indicates the amount of cash available at the end of the reporting period, reflecting the net effect of cash inflows and outflows during that time.