Podcast
Questions and Answers
What is the net cash flow for the month of October 2019 in the ABC Cash Budget?
What is the net cash flow for the month of October 2019 in the ABC Cash Budget?
How much were the total receipts expected to be in November 2019 according to the ABC Cash Budget?
How much were the total receipts expected to be in November 2019 according to the ABC Cash Budget?
If 25% of customers pay 2 months after a sale, how much are the credit sales expected to be in September 2019?
If 25% of customers pay 2 months after a sale, how much are the credit sales expected to be in September 2019?
What was the total payment for wages in October 2019 according to the ABC Cash Budget?
What was the total payment for wages in October 2019 according to the ABC Cash Budget?
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What was the closing balance at the end of November 2019 in the ABC Cash Budget?
What was the closing balance at the end of November 2019 in the ABC Cash Budget?
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If Cash Sales are expected to be 25% of each month's sales and £100,000 is expected in September 2019, what is the expected Cash Sales amount for that month?
If Cash Sales are expected to be 25% of each month's sales and £100,000 is expected in September 2019, what is the expected Cash Sales amount for that month?
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What is the primary purpose of a Cash Budget?
What is the primary purpose of a Cash Budget?
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What benefit does a Cash Budget provide to a business?
What benefit does a Cash Budget provide to a business?
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What type of costs are typically excluded from a Cash Budget?
What type of costs are typically excluded from a Cash Budget?
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How can a large surplus of cash predicted by a Cash Budget be utilized by a business?
How can a large surplus of cash predicted by a Cash Budget be utilized by a business?
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What financial action can a business take if the Cash Budget indicates an upcoming cash shortfall?
What financial action can a business take if the Cash Budget indicates an upcoming cash shortfall?
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In the context of a Cash Budget, what is an essential step in managing future financial needs identified by the budget?
In the context of a Cash Budget, what is an essential step in managing future financial needs identified by the budget?
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Which statement is true regarding the difference between cash and profit?
Which statement is true regarding the difference between cash and profit?
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Which item affects cash but does not impact profit?
Which item affects cash but does not impact profit?
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What is the effect of purchasing goods on credit on cash and profit?
What is the effect of purchasing goods on credit on cash and profit?
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Which transaction would lead to a decrease in cash but not necessarily in profit?
Which transaction would lead to a decrease in cash but not necessarily in profit?
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How does raising a new loan affect cash and profit?
How does raising a new loan affect cash and profit?
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What is the impact of depreciation of a Non-Current Asset on cash and profit?
What is the impact of depreciation of a Non-Current Asset on cash and profit?
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Study Notes
Cash Budget
- A cash budget is a forecast of a business's or individual's inflows and outflows of cash over a specific period of time.
- It helps to identify whether the business will have a cash surplus or deficit in the near future.
- Cash budget is essential for planning and decision-making.
Preparation of a Cash Budget
- Identify the sales and purchases for the period, including cash and credit transactions.
- Calculate the total receipts and total payments for each month.
- Calculate the net cash flow by subtracting total payments from total receipts.
Cash Budget Example
- Receipts: cash sales, credit sales (1 month and 2 months after the sale)
- Payments: purchases, wages, vehicle expenses
- Net cash flow is the difference between total receipts and total payments.
Benefits of Cash Budget
- Helps to identify potential cash flow problems and arrange for finance or overdraft.
- Identifies opportunities to invest surplus cash or pay off loans.
- Highlights areas where costs can be cut and payments rescheduled.
Cash vs Profit
- Cash and profit are different; cash affects liquidity, while profit affects profitability.
- Items that affect cash/bank position may not affect profit for the year, and vice versa.
- Examples of such items include:
- Sale of goods on credit
- Purchase of goods on credit
- Prepayment of an expense
- Accrual of an expense
- Purchase of a non-current asset
- Depreciation of a non-current asset
- Increase/decrease in provision for doubtful debts
- Injection of new capital/issue of shares
- Repayment of a loan
- Raising a new loan
- Sale of a non-current asset
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Description
Test your knowledge on calculating cash flow statements using a given example. Learn how to analyze receipts, payments, net cash flow, opening and closing balances for a specific period. Understand the process of splitting up cash and credit transactions in business scenarios.
