D076 Module 8

Which item is an example of a cash receipt in a personal budget?

A graduation gift of $100 from your grandmother

Which item represents an example of a cash disbursement a business might have this month?

A rent check paid and cashed for the warehouse the company uses

Why is "put $50 in a savings account each month for Christmas gifts" a better budgeting goal than "save money for Christmas gifts"?

Because it is specific and measurable

Why would a monthly mortgage payment be considered a fixed expense?

Because the payment is the same amount each month

How far into the future do cash budgets usually forecast?

Between one month and one year

What are the three main uses of cash budgets?

Cash budgets are used to forecast future financial need, aid in performance evaluation, and show when corrective action is needed.

W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also needs to keep better track of its cash flows to assess its need for additional financing through short-term loans. Why would creating a cash budget be useful for W&H if the firm needs a loan from the bank or another short-term lender?

Cash budgets increase the lender's trust in a firm by demonstrating the firm's ability to make profits and repay loans.

W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also needs to keep better track of its cash flows to assess its need for additional financing through short-term loans. W&H Inc.'s labor costs each month are an example of which item in a cash budget?

Cash disbursement

What three things should be included in a cash budget for a business?

Cash receipts, cash disbursements, and borrowing

Which action would help you make your budget more efficient?

Compare your budgeted cash flows to your actual cash flows, and then revise the budget if necessary.

What is the correct order of the three steps necessary to create a cash budget?

Determine cash receipts, estimate cash disbursements, create the cash budget

W&H Company wants to create a cash budget to better manage its cash flows. The financial manager knows that the firm's labor costs and materials costs are too high for the level of sales each month. The firm also needs to keep better track of its cash flows to assess its need for additional financing through short-term loans. After W&H Inc. has developed a cash budget, what should the company do in the following months?

It should monitor its actual cash flows and then revise the cash budget if needed.

What are three principles of budgeting that are important to know before beginning the budgeting process?

Keep records; develop savings, income, and expense strategies; and use a method that meets your needs and objectives

How do the benefits of knowing the cash position for each period differ between businesses and individuals?

Knowing the cash position allows businesses to recognize when short-term loans are needed, while it allows individuals to analyze progress toward their personal financial goals.

What is the purpose of monitoring your cash flows?

Monitoring allows you to evaluate whether your actual cash flows are in line with your goals and to understand when correction or revision is needed.

What is the difference between tracking and monitoring cash flows?

Monitoring involves using your tracking record to evaluate cash flows against your target, identify patterns and changes in cash flows, and gauge when correction is needed.

Which processes help you identify and fix problems in your budget?

Monitoring your budget allows you to identify problems, and then gradual revision and implementation of new processes allow you to fix those problems.

Which items are considered cash disbursements for a business?

Raw materials, rent, administrative expenses, interest, and selling expenses

Why are sales not strictly considered to be the same thing as cash receipts?

Sales include both cash sales and credit sales.

What is the main reason why it is important to track and record cash flows?

Tracking your cash flows allows you to recognize where and how your money is spent so you can monitor your cash flows and revise your budget as needed.

When evaluating a company's performance, what can variances on a company's cash budget indicate?

Variances show that certain managers or divisions are not meeting targets.

In what situation might the software method of tracking be preferable to the spreadsheet method of tracking?

When a person has a hard time remembering to record their cash flows and when they prefer to use a card to make purchases Correct! The software method is convenien

cash budgeting

a plan for controlling cash inflows and outflows business to balance income with expenditures

fixed expenditures

an expense that you do not have direct control over and that remains constant from period to period

variable expenditues

an expense that you have direct control over and that can change from period to period

What are three steps to budgeting?

determine cash receipts, estimate cash disbursements, create the cash budget

What are three major uses of cash budgeting?

indicating future financing needs, providing a basis for corrective action, and providing the data for performance evaluation

Methods of tracking a budget include;

the envelope method, spreadsheets, and software

Tracking

the process of recording cash flows

What are the five steps to create a budget for your personal finance?

understand your goals, track your savings, income, and expenses, develop a cash budget, implement your plan, compare the cash budget to your actual spending and make necessary changes