2.11 cash budget
TRANSCRIPT
175
CASH BUDGET2.11
Textbook pp. 328-344
Links: 1.2, 1.12, 2.10, 2.12
Assess the importance of planning an organisation’s cash flow, propose suitable sources of finance to manage expenditure and prepare a cash flow budget.
Pick out four large words from this word cloud and explain them in relation to this unit.
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Discuss what these words tell you about this unit. Are there any small words that you are surprised to see? Why?
BEFORE WE BEGINDo this exercise individually or in pairs. Tick ü whether you agree or disagree with the statements. Revisit it after the unit to see if you have changed your mind about any of them.
Before After
I agree I disagree Statement I agree I disagree
The cash budget shows the cash flow forecast of an organisation
Cash is just as important as profit
A cash budget is only useful for not-for–profit organisations
Individuals, households, organisations and governments must always select a source of finance that matches their needs
Sources of finance are all long-term
Key Words
Cash – A business needs cash to pay bills, it buys materials and covers delays in payments.
Budget – Shows all the projected cash coming in and out of the business.
Finance – How a business may finance themselves e.g. loan, grant etc.
Organisation – There are profit and not-for-profit organisations.
QUESTIONS 1. Explain the following as they relate to record-keeping.
Managing cash
Managing debtors
Managing stock
2. Is profit the same as cash? Explain your answer.
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3. What is a cash budget?
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4. What kind of organisations prepare a cash budget?
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Read the following statements. Tick ü whether you believe them to be true or false.
Statement True False
A cash budget takes into account the value of a company’s assets
A cash budget usually has figures for each month
A debtor is an asset
A creditor is an asset
A bad debt is a debt that will not be paid
Medium-term finance is used to pay for things like a new premises
Hire purchase is an example of medium-term finance
A business can never have too much stock
A cash budget is the same as a cash flow budget
Money taken out of the business by owners is known as drawings
True or False?
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BE BUSINESS WORKBOOK: ENTERPRISE2.11
üü
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No. Cash is the amount of money you can receive/pay, however, profit is the amount of money a
business can make after expenses are paid.
Making sure an organisation has enough cash to pay their bills.
An organisation needs to keep track of its debtors and make sure it doesn’t have bad debts.An organisation must ensure it has sufficient stock. Good stock control is essential.
It shows projected cash coming into an organisation and all of the projected cash going out. Usually
shown on a month-by-month basis.
Any organisation prepares a cash budget, for-profit organisations and not-for-profit organisations.
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CASH BUDGET 2.11
5. List the six steps to creating a cash budget.
1.
2.
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4.
5.
6.
6. The following is the cash budget for January to March 2020 of Hassle Free, a company simplifying taxation and helping individuals with their tax returns. Fill in the missing figures in the shaded part of the table.
Cash Budget for Hassle Free for the three months January to March 2020
January €
February €
March €
Total January to March €
Receipts
Sales 2,600 1,600 800 5,000
Investments 1,300 200 1,500
Interest received 100
Total receipts 2,600 3,000 1,000 6,600
Expenditure
Labour 330 330 330 900
Paper 130 130 260
Admin wages 400 400 800
Business cards 300 300
Posters 100 100
Phone calls 100 100
Travel 1,000 1,000
Total expenditure 630 1,860 1,060 3,550
Net cash 1,970 1,140 (60) 3,050
Opening cash 500 2,470 3,610 500
Closing cash 2,470 3,610 3,550 3,550
Prepare a skeleton template and insert opening cash.
Record all receipts/cash in and total receipts.
Record all payments/cash out and total payments.
Calculate net cash position.
Calculate planned opening cash.
Calculate planned closing cash.
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7. a) The following is the cash budget for February to July 2020 of Everafter. Fill in the missing figures.
Cash Budget for Everafter for the six months February to July 2020
Feb €
March €
April €
May €
June €
July€
Total Feb to July €
Receipts
Cash sales 70,000 70,000 80,000 80,000 80,000 100,000 480,000
Loan 180,000 180,000
Total receipts 70,000 70,000 80,000 80,000 260,000 100,000 660,000
Payments
Cash purchases 56,000 30,000 30,000 34,000 34,000 34,000 218,000
Light and heat 2,000 2,000 250 4,250
Wages 18,000 18,000 18,000 18,000 18,000 18,000 108,000
Motor vehicles 30,000 30,000
Advertising 5,000 5,000 5,000 5,000 5,000 5,000 30,000
Buildings 300,000 300,000
Rent 3,000 3,000 3,000 3,000 12,000
Total payments 84,000 56,000 58,000 60,000 357,250 87,000 702,250
Net cash (14,000) 14,000 22,000 20,000 (97,250) 13,000 (42,250)
Opening cash 4,000 (10,000) 4,000 26,000 46,000 (51,250) 4,000
Closing cash (10,000) 4,000 26,000 46,000 (51,250) (38,250) (38,250)
b) What option might Everafter have instead of buying buildings?
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8. a) Using the following information, complete the cash budget for January to March 2020 for Learn Co. January has been filled in.
• Sales remain the same in February and increase by 10% in March
• Investments give a return in February of €10,000
• There are no loans received in February and €5,000 received in March
• Salaries remain the same in February and March
• Repairs cost €1,400 in February and the same again in March
• Admin wages are paid in February – €8,600, and March – €600
• There is no cost for business cards in February or March
• Posters are paid for in March – €100
• Travel expenses are €100 in February
BE BUSINESS WORKBOOK: ENTERPRISE2.11
They could lease the buildings instead.
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CASH BUDGET 2.11
Cash Budget for Learn Co for the three months January to March 2020
January €
February €
March €
Total January to March €
Receipts
Sales 30,000 30,000 33,000 93,000
Investments 10,000 10,000
Loans 5,000 5,000 10,000
Total receipts 35,000 40,000 38,000 113,000
Expenditure
Salaries 10,000 10,000 10,000 30,000
Repairs 1,400 1,400 2,800
Admin wages 8,600 600 9,200
Business cards 300 300
Posters 100 100
Phone calls 0
Travel 1,700 100 1,800
Total expenditure 12,000 20,100 12,100 44,200
Net cash 23,000 19,900 25,900 68,800
Opening cash 1,000 24,000 43,900 1,000
Closing cash 24,000 43,900 69,800 69,800
b) What is the opening cash for Learn Co? _________________________________________________________
c) What is the closing cash for Learn Co? __________________________________________________________
d) Why is it important to prepare a cash budget?
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e) How is the cash budget similar to a household budget?
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f) What might be the differences between the cash budget prepared by a company and the budget prepared by the government?
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A cash budget can reveal times when an organisation may need extra cash to cover expenditure or
when they might have surplus cash.
It is prepared in the same way as a household, usually monthly, with opening and closing cash.
The types of income and expenditure are different. A government prepares a national budget for one
year. Cash budgets are usually prepared monthly.
€1,000
€69,800
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9. Assign the following sources of finance under the correct heading in the table.
Bank overdraft Hire purchase Leasing Expenses due
Creditors Capital Medium-term loan Long-term loan
Ordinary capital Retained earning Charge card Mortgage
Short–term 0 – 1 year Medium-term 1 – 5 years Long-term > 5 years
10. What source of finance would be most suited to each of the following?
Expanding into the EU market
Paying a commission to salespeople
Paying taxation
Upgrading machinery
Printing business cards
11. What sources of finance might a student have?
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12. What sources of finance might a household have?
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13. What sources of finance might a not-for-profit organisation have?
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14. What sources of finance might a for-profit organisation have?
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BE BUSINESS WORKBOOK: ENTERPRISE2.11
Grant, student loan.
Bank overdraft
Creditors
Expenses due
Charge card
Leasing
Hire purchase
Medium-term loan
Ordinary capital
Capital
Retained earning
Long-term loan mortgage
Retained earnings
Bank overdraft
Charge card
Hire purchase
Expenses due
Bank overdraft, credit card, hire purchase, mortgage.
Fundraising, government grants, retained earnings.
Leasing, creditors, ordinary share capital, long-term loan.
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CASH BUDGET 2.11
15. Early Go-getters is a crèche started by two friends, Babs Ryan and Mary Childers. They are in the process of buying for their new business and have asked for your advice on what sources of finance to use. Advise Babs and Mary on each of the items in this table.
Item Source of finance Why?
Delivery vans
Premises
Land
Food for the children
Paint to decorate the crèche
Toys
Alarm
Fittings and furniture
Computer
16. Compose a tweet from the ‘Be Business’ account in response to Kim.
Kim @211E@bebusiness What is the difference between short- and long-term finance?@211E
9:15 AM - 19 Feb 17
Follow
Hi Kim, Short-term finance is for short-term needs that have to be paid back within one year. Long-term finance is for long-term needs, and has to be paid back within an agreed time, usually more than five years.
Hire purchase
Long-term loan
Long-term loan
Credit card
Expenses due
Credit card
Bank overdraft
Leasing
Medium-term loan
Can be more expensive than a loan but better than leasing as you eventually own the vans. Medium-term source of finance.
Large amount of money needed to buy premises. This source of finance is for long-term needs.
Large amount of money needed to buy land. This source of finance is for long-term needs.
Free, if you pay within agreed time so good use of short-term finance.
Can pay for the painting of the crèche and delay another expense that is due to be paid, until the following month.
Free, if you pay within agreed time so good use of short-term finance.
Interest is paid on overdrawn amount only for the amount of time it is overdrawn for.
You have the use of the expensive furniture and fittings without having to buy it up front.
Good source of finance for this particular item. To be paid back, with interest, in 1–5 years.
Explain these key terms.
Stock control
Credit
Cash budget
Debtor
Creditor
Loan
Overdraft
Grant
Leasing
Hire purchase
Are you ready to go on to the next unit?
2.11 Read the Learning Outcome Getting ready Revisited Got it!
Reflect on your learning:
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Looking Back
Moving On
Now revisit the ‘Before We Begin’ exercise.
BE BUSINESS WORKBOOK: ENTERPRISE2.11
Ensuring that the business has the right amount of stock.
Buying on credit is when a business purchases items and pays for them later.
Shows all the projected cash coming into the business and all the projected cash going out of the business.
Someone we sell goods to on credit – they owe us. They are an asset – something of value.
Someone we buy goods from on credit. We owe them. Our business will pay them at a later date.
Money that is borrowed within a certain period and has to be repaid with interest.
A sum of money is given to an organisation for a particular purpose.
Hiring something, usually equipment. This saves having to pay out large sums of money to purchase the items.
A facility given by a bank. The borrower can take out more money from their bank account than they have put in it.
A method of buying over a period of time. You put a deposit on the item and pay off the rest in instalments.
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CASH BUDGET 2.11
1. What skills have you developed while studying this topic?
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2. What new technology have you used in this topic (useful websites/YouTube clips/tweets)?
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3. What research have you done? Did you use a trustworthy source? Has it dated?
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4. What new information have you discovered?
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5. How has the learning influenced your thoughts, opinions, attitudes and behaviour?
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6. How might the learning influence your future?
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7. What values have you encountered in this unit?
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8. What decisions have you made in this unit?
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Key Check