Cash budgets and Credit Sales

• Three reasons for preparing a cash budget

  To display all the cash coming in and out of a business. To see if the business can afford to buy a new piece of equipment in the future. To find the closing balance for each month.
• Advantages of cash budget:

  helps to plan ahead and make arrangements for additional finance if needed e.g A loan. Can highlight areas where costs can be cut and savings made. Helps to plan for future expidenture e.g New delivery van, new coffee machine e.c.t
• Disadvantages of cash budgets:

  It is created using estimated figures only, not the exact figures. Solutions to any identified problems are not obvious and not always quick to implement e.g finding a cheaper premises to rent.
• What are credit cards used for?

  Credit cards can be used to purchase new items but lets you pay for the items at a later date.
• What is a credit sale?

  Credit sales is the term used by businesses to record customers who purchase their goods and pay for the items at a later date in their cash budget.
• If an employee receives the exact same pay for each month of the year which type of pay scheme are they on?

  Salary
• If Harry works 40 hours a week and is paid £10 per hour what will his Gross Pay be?

  £400
• Kira‘s Net Pay for the month is £2,200. Her Gross Pay was £3,000. How much Income Tax must Kira have paid?

  £800
• When Income Tax is deducted from an employee’s wage who receives the money?

  HMRC (His Majesty’s Revenue and Customs)
• What best describes an employees net pay?

  Amount received after taking away income tax, national insurance and pension payment.
• James is thinking of opening a savings account to help his money grow. Is a savings account with 2% interest or 5% interest better at growing his money at a faster rate than 3% interest?

  A savings account with 5% interest
• Dorothy invested £100 into a savings account for one year. The interest is 5% per year. How much interest will Dorothy receive?

  £5
• Buying goods on credit means that you can receive the goods straight away and pay for them at a later date. True or False?

  True
• Beginning with the letter I, what will credit card companies charge customers if they do not pay the amount owed by the due date?

  Interest
• Starting with the letter R, what is another name for cash coming into a business (Cash In)?

  Receipts
• Two examples of cash coming into a business:

  A bank loan and Sales revenue from customers.
• Beginning with the letter P, what is another term for cash going out of a business (Cash Out)?

  Payments.
• Two examples of cash going out of a business:

  Employee wages and Rent.
• What is the closing balance of a cash budget calculated by?

  Opening balance + Total Cash In - Total Cash Out.
• If Isabella has £2,200 as a closing cash balance in January, -£2,700 closing balance in February and -£7,000 closing balance in March will she have a negative opening balance in April?

  Yes
• Lauren is thinking of taking a short-term loan from the bank to cover the negative cash balance in February and March. What type of loan is this called?

  Overdraft
• What would not be used to help avoid a negative closing balance?

  Purchasing a new delivery van for your business.
• Hannah is concerned about the rising costs of her motor parts. Give three examples of what she could use to manage the amount of cash spent on these?

  Find a cheaper supplier. Arrange a discount for buying parts in bulk. Negotiate a cheaper price with the supplier.