Cash Flow Statement Calculation

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Questions and Answers

What is the net cash flow for the month of October 2019 in the ABC Cash Budget?

£43,000

£31,000

£88,600

£14,600 (correct)

How much were the total receipts expected to be in November 2019 according to the ABC Cash Budget?

£87,600

£80,000 (correct)

£93,000

£260,600

If 25% of customers pay 2 months after a sale, how much are the credit sales expected to be in September 2019?

£18,000

£25,000

£23,500 (correct)

£66,500

What was the total payment for wages in October 2019 according to the ABC Cash Budget?

£40,000 Signup and view all the answers

What was the closing balance at the end of November 2019 in the ABC Cash Budget?

£43,600 Signup and view all the answers

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?

$24,500 Signup and view all the answers

What is the primary purpose of a Cash Budget?

To manage cash inflows and outflows Signup and view all the answers

What benefit does a Cash Budget provide to a business?

Identifying areas of overspending Signup and view all the answers

What type of costs are typically excluded from a Cash Budget?

Costs involving no cash transactions Signup and view all the answers

How can a large surplus of cash predicted by a Cash Budget be utilized by a business?

To invest and earn interest Signup and view all the answers

What financial action can a business take if the Cash Budget indicates an upcoming cash shortfall?

Arrange an overdraft or other finance Signup and view all the answers

In the context of a Cash Budget, what is an essential step in managing future financial needs identified by the budget?

Cutting unnecessary costs and expenses Signup and view all the answers

Which statement is true regarding the difference between cash and profit?

Some transactions may affect cash but not profit, and vice versa. Signup and view all the answers

Which item affects cash but does not impact profit?

Prepayment of an Expense Signup and view all the answers

What is the effect of purchasing goods on credit on cash and profit?

Has no impact on either cash or profit. Signup and view all the answers

Which transaction would lead to a decrease in cash but not necessarily in profit?

Repayment of a loan Signup and view all the answers

How does raising a new loan affect cash and profit?

Increases both cash and profit. Signup and view all the answers

What is the impact of depreciation of a Non-Current Asset on cash and profit?

Decreases cash but increases profit. Signup and view all the answers

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.