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Questions and Answers
What is one of the primary functions of a budget in a business?
Which of the following is NOT considered a cash inflow in a cash budget?
What is the final step in the format of a cash budget?
What do production budgets primarily show?
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Which aspect of budgeting is focused on the monitoring of actual results against what was planned?
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In preparing a cash budget, what needs to be added to the net cash inflow/outflow?
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What is a common item found in cash outflows?
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Why is establishing a system of control through budgeting important?
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Study Notes
Functions of a Budget
- A budget is an essential part of business planning.
- Budgets help businesses to:
- Plan for the future
- Quantify goals
- Coordinate different departments
- Communicate goals and plans to the whole organization
- Motivate employees
- Establish a system of control
Cash Budget
- A cash budget tracks the flow of cash into and out of a business over a period of time.
- Components of a Cash Budget:
-
Cash Inflows
- Cash sales receipts
- Receipts from credit sales (trade receivables)
- Receipts from sale of assets
- Loan proceeds
- Issue of shares
- Receipt of government grants
-
Cash Outflows
- Cash purchases
- Payments to suppliers for purchases made on credit
- Payments for expenses (e.g., wages, electricity, stationery, rent, rates, insurance)
- Purchase of Assets
- Loan Repayment
-
Cash Inflows
Preparing a Cash Budget
- Focuses on the flow of cash in a specific period, regardless of when revenue or expenses are recognized in the Statement of Profit and Loss Account.
Production, Material Usage, and Material Purchases Budgets
- Production Budgets establish the amount of finished product needed.
- Material Usage Budgets determine the amount of raw materials needed for achieving production goals.
- Material Purchases Budgets determine how much material should be purchased.
Control Aspects of Budgeting
- Budgeting quantifies future plans for the business.
- A key aspect of budgeting is monitoring actual results against budgeted results, identifying differences, and analyzing their causes.
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Description
This quiz explores the essential functions of a budget in business planning, detailing how it helps in setting goals and coordinating departments. Additionally, it covers the components of a cash budget, including cash inflows and outflows, which are crucial for tracking financial health.
