175 CASH BUDGET 2.11 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. 1. ____________________________________________________________________________________________ 2. ____________________________________________________________________________________________ 3. ____________________________________________________________________________________________ 4. ____________________________________________________________________________________________ Discuss what these words tell you about this unit. Are there any small words that you are surprised to see? Why? BEFORE WE BEGIN Do 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.
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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.
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.
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
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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.
3.
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.
178
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
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!