Flashcards
accounting - module 2 - unit 5 & 6
Cards in this deck (20)
- 1What is budgetry control?Budgetry control or budgeting is the use of budgets to control and monitor the performance of the business, by comparing the budgeting forcasts and the actual business performance at frequent intervals so that corrective actions can be taken when necessary.
- 2Give 3 benefits of preparing budgets.Planning - Makes sure scarce resources are used efficiently.
Motivation - Can be used to set targets for managers/employees.
Evaluation - Compare with actual to evaluate strengths/problems. - 3Give 3 limitations of budgets.Based on forecast data.
Targets if set too high may de-motivate staff.
Need to be flexible for changes in demand or competition. - 4What are cash budgets and what do they record?A cash budget is a forecast of the cash inflows and cash outflows for a future period of time. They record:
Cash inflows - cash entering the business
Cash outflows - cash leaving the business - 5Why will a business want to create a cash budget in the first place?The business will need to predict the amount of cash available in the future.
A cash budget can be used to support an application for an overdraft or loan from a bank. - 6What cash inflows may be included in the cash budget?Credit sales
Cash sales
Issue of loans or shares - 7What cash outflows may be included in a businesses cash budget?Expenses
Drawings
Purchase of fixed assets
Repayment of loans - 8How is net cash flow for the month calculated?Net Cash Flow =
cash Inflows - cash outflows - 9How is the month's closing bank balance calculated?Closing Bank Balance =
opening bank balance + net cash flow - 10What is the opening balance of each month equal to?Opening Bank Balance
=
last month's closing bank balance - 11How is the overall Net cash flow calculated?Net Cash Flow =
closing bank balance - opening bank balance - 12Why is it ideal for a business to have a positive overall net cash flow?It will not require an arrangement of a bank overdraft.
The business can use this cash to apply for a bank loan to purchase a non-current asset. - 13How can a business can improve its net cash flow?1. Increasing cash inflows
Increasing the selling prices to customers
Increasing sale volumes
2. Reducing cash outflows
Reducing payments like staff wages
Finding cheaper suppliers - 14Why does net profit different from net cash flow?Net profit includes non cash-flow items e.g. depreciation, but excludes capital expenditure items e.g. purchase of a non-current asset.
Net cash flow excludes non cash-flow excludes non cash-flow items, but includes capital expenditure. - 15What is a bank overdraft?A bank overdraft is when a bank allows the customer to spend more than they have in their account. The bank will charge interest on the amount borrowed, and should therefore be used for short periods of time.
- 16What would be more appropriate than an overdraft if the trader needs to borrow money for a longer time period?If money is required for a longer period e.g. 1 year, the trader should consider a bank loan.
- 17Why is cash important to a business?-It can be used to pay wages and suppliers
-Cash may be needed to buy equipment
-It is a sign the business is healthy and probably making a profit
-It reduces the likelyhood of having to borrow money - 18What may happen if a business runs out of cash?It may become insolvent, meaning it has insufficient money to pay its debts and the bank is not willing to lend any money. This may cause a sole trader to be declared bankrupt, or a company to go into administration.
- 19What are the advantages of using ICT in accounting?Speed - simultaneous data processing
Accuracy - advanced calculating features
Cost efficiency - less staff are needed - 20What are the disadvantages of using ICT in accounting?IT equipment can be expensive
Risk of viruses and data theft
Staff will need to familiarise themselves with the new equipment
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- A-levels Accounting - Module 2 Flashcards on accounting - module 2 - unit 5 & 6, created by Amardeep Kumar on 13/05/2015.
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- Amardeep Kumar
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