Business Finance: Cash Budget, Expenses, Drawing, Profits, and Financial Terms

This report provides insights into managing and raising funds through organization, planning, control, and analysis operation. It includes a cash budget for a trading company for six months, and discusses the difference between capital expenditure and revenue expenditure, gross profits and net profits, and cash budget and cash flow statement. It also explains financial terms such as assets, liabilities, ordinary share, preference share, dividend, stock exchange, venture capital, budget, and capital income.

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................2
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
The business finance means managing and raising of funds through organization.
Planning, control and analysis operation are main responsibilities of financial managers. The
financial manager is commonly close to top of business structure of a company. Business finance
is also known corporate finance in organization world. The report includes cash budget for the
trading company for six months which is ended on 31 December 2022. Moreover, this report will
discuss the statement “cash and profits are same” in brief. Furthermore, this report will
differentiate between expenses and drawing, prepayments and accruals, net profits and gross
profits, cash flow statement and capital expenditure. The report will also some financial terms.
MAIN BODY
Cash budget
July August September October November December
Opening balance £10000 £22716.03 £23254.44 £20121.11 £18949.07 £9567.4
Cash receipt £3800 £2890 £2050 £3450 £5000
Loan £15000 0 0 0 0 0
Total cash receipts £25000 £26516.03 £26144.44 £22171.11 £22399.07 £14567.4
payments
Purchases £1098.96 £2076.59 £3693.33 £2037.03 £2266.67 £2785.99
Telephone costs 0 0 £420 0 0 £420
electricity 0 0 £725 0 0 £725
Accountant fees £250 £250 £250 £250 £250 £250
Other expenses £90 £90 £90 £90 £90 £90
drawing £725 £725 £725 £725 £725 £725
Delivery costs £120 £120 £120 £120 0 0
Purchase van 0 0 0 0 £9500 0
Total cash £2283.93 £3261.59 £6023.33 £3222.04 £12831.67 £4995.59

payments
Closing balance £22716.03 £23254.44 £20121.11 £18949.07 £9567.4 £9571.48
working
Purchase calculation
Sales 3800 2890 2050 3450 5000 2680
Gross profit margin 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%
Purchases 2814.8 2140.7 1518.5 2555.56 3703.7 1985.18
Purchase (liner
shirts) 2680
Total purchase £5494.81 £2140.74 £1518.51 £2555.56 £3703.77 £1985.18
July August September October Nov. Dec.
Same month 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
30% in next
month 30.00% 30.00% 30.00% 30.00% 30.00%
50% in next
month 50.00% 50.00% 50.00% 50.00%
Extra
purchase 20.00% 30.00% 50.00%
Amount
562.96 428.14 303.7 511.11 740.74 397.03
536 844.44 642.22 455.55 766.67 1111.11
804 1407.4 1070.37 759.23 1277.78

1340
Total £1098.96 £2076.59 £3693.33 £2037.03 £2266.66 £2785.92
TASK 2.1
Is cash and profits are same?
Cash and profits are not same , there are many differences such as profits is revenue less
expenses of a business in a period while in cash that flow in and out from company throughout
certain period. Cash is engine that help small business. An organizations' success is depended on
the quality to managing its cash. So cash is not a profit and profit is not a cash. A company need
both to survive in the market and for growth and sustainability of business. Every company need
both then they will expand and get more and more success. Cash refers to amount of money
currently or that soon to be available. It is money coming in the business by investors or the
direct business activity. Profits is the left amount of money after deduction of expenses. For
getting profits a company need cash without cash they not invest and get profits. Cash and profits
are both essential for business. Without cash company can not operate business activity.
There are many business transaction that do not need immediate movement of the cash
such as credit sales and credit purchase. In credit purchase or purchase on credit is to purchase
something today but it will pay later at the maturity of fixed date. For example credit card that is
by the use of credit card they buy products today, and they have to pay later. Credit sales
example if the business purchase raw material from the suppliers and have to pay later than its
called sales on credit.
B. Differentiate between :
Capital expenditure and revenue expenditure
Capital expenditure is funds that is used by a firm, organization, enterprise or a company to up-
Great, maintain and acquire fixed assets. Asset includes plants, property and equipment. Whereas
Revenue expenditure incurred to handle and maintain day to day activities.
Capital expenditure tenure is long term however, revenue expenditure tenure is short term.
In Capital expenditure raise existing assets value however revenue expenditure not.
Capital expenditure is non- recurring in the nature whereas revenue expenditure is recurring in
nature.
In capital expenditure there is availability of capitalization whereas in revenue expenditure is not.

Capital expenditure not give or reduce business revenue, whereas in revenue expenditure give
impact and reduce business revenue.
Capital expenditure create long term benefits, on the other hand revenue expenditure gives short
term benefits.
Capital expenditure appears as company Assets in balance sheet and some part in income
statement, whereas revenue expenditure is always appears in income statement.
Expenses and drawing
Drawing refers to an action of taking cash or funds from company holding for personal use.
Whereas expenses is cost of business operation.
Drawing not generate any type of revenue for business whereas expenses is cost of operation that
organization incurs to create revenue.
There are many business owners which use drawing accounts generally if they are part of
partnership and sole proprietorship. However, expenses are present in each and every
organization.
Drawing also consider items which are removes from company for individual use whereas
expenses are required for day to day operation.
Drawing is done for personal use whereas expenses are not for personal use they are use for
business.
Types of forms in which business owners can take drawing from the company such as business
assets, dividends, cash and scrip dividends while in expenses there's no such form.
Gross profits and net profits
Gross profits is profit traced after subtracting expenses (that is manufacturing) from total
earning. Whereas, net profit is available profits after subtracting all expenses, interest and taxes
from the gross profits.
Gross profits help in minimizing cost while net profits help to approximation profits of the
company.
Gross profits helps to determine rough profits. Whereas net profits helps to determine actual
earning in financial period.
Gross profits comprises overhead taxes and costs whereas net profits comprises interest,
operating expenses and interest.

Gross profits always appear on credit side of the trading account, while the net profits always
appear on credit side of the profit and loss account.
Formula of gross profits is revenue – COGS (cost of goods sold), however net profits is derived
by gross profits – expenses.
Gross profits is not provides idea of availability of profits so it is not helping business strategies,
while in net profits is more dependable as compare to gross profits to formulate business
strategies.
Cash budget and cash flow statement
Cash budget is a document prepared to help company to manage their cash flow. While cash
flow statement is financial statement that offers data regarding the cash inflows and outflows that
a business receive.
Cash budget is always prepared in advance to shows planned monthly cash receipts and planned
cash payments. While cash flow statement shows inflows and outflow of cash in a certain period.
Cash budget is prepared for short time such as daily, monthly, weekly and half-yearly etc.
whereas cash flow statement is prepared for long period such as yearly.
Cash budget is
Explaining the following terms:
Assets: Asset is one of the most important element in the economic area where every individual,
corporation or country own a asset that bring value to something. Asset can be land, gold or
other purchased resource which remains with the firm for longer period of time. The definition of
asset is quite wide, it becomes challenging providing best term for asset (Haji and Ghazali,
2018). One of the most common characteristic of asset is cash flow, it is very clear that every
asset have ability to generate cash flow and income for individual or firm. Assets are recorded on
left side of balance sheet.
Liabilities: This is another important element in the firm where company owes something
against money, liabilities are not expense but these are obligation against amount. Firms own
liabilities to carry on business operation including short term financial goals, liabilities work an
obligation between one party to another allowing firm to manage their operation. These are
written in opposite of asset and net value of asset, liabilities are considered important element to

run a business organization. Liabilities are written on right side of the balance sheet focusing on
certain types of liabilities like loans, account payable, mortgage and accrued expenses.
Ordinary share: Ordinary share are common share which is usually allotted by the company to
public in offering, these shares are powerful enough to provide voting power to shareholder in
the company meeting. Ordinary share is different from preference share because in preference
share there is dividend guarantee but in the case of ordinary share, no dividend is provided to the
company. A shareholder of ordinary share enjoy certain power, including voting and right to
transfer share, majority of company's investors are ordinary shareholder as these are considered
as ordinary share with most value in the firm, these shares are powerful as well.
Preference share: This is one of the most common type of share in the business organization
where firm try to provide more benefit to preference shareholder as compared to equity
shareholder holder in terms of dividend. It is very clear that dividend is provided to preference
shareholder and no other shareholder is eligible for dividend from the firm over profit.
Preference carries certain power. For example; if company went bankrupt then at first only
preference shareholder will be paid from remaining capital of the firm. These are special type of
share which is only allotted to minimum shareholder because eligibility criteria is quite high in
the process.
Dividend: Dividend is profit distribution profit process where firm try to distribute profit, this
can be either capital remaining or surplus profit of the company. Dividend are paid to preference
shareholder who have right to ask for dividend on company's profit, preference share are most
powerful allowing holders to capture certain power in the process (Atmaz and Basak, 2022).
Dividend is just a proportion of profit, company only share such dividend when they are eligible
to pay. However, firm can not deny to pay dividend even if they do not have remaining capital
during wind up, shareholder carry power to gain dividend from company even in the times of
bankruptcy.
Stock exchange: Stock exchange place where company introduce share to raise funds from
general public, every country have their own stock exchange which allow them to list valuable
companies. This place is used for buying and selling of share, primary market in stock exchange
is area where new share are listed whereas secondary market is place where second hands share
are bought and sold (Bansal and et.al., 2019). New listing is often called IPO (Initial Public

Offering) where company freshly introduce share to raise funds. Some of the common example
of stock exchange are; London stock exchange.
Venture capital: Venture capital is used as financial tool and investment opportunity that allow
individual to invest in business operation, venture capitalist are wealthy investor who have
ability to invest huge amount in the business (Metrick and Yasuda, 2021). It is very clear that
every business need valid source of funding that allow firm to operate certain business operation,
venture capital is one of safest and effective option available with business to perform funding.
Here wealthy investor try to connect with vision of the firm and invest, this is also known as
private equity where firm try to start new operation with stable source of sufficient funds.
Budget: Budget is common term in business and financial world, budget is estimation of
revenue and occurring expenses over particular period of time. Budget can be made with the help
of strategic planning where firm need to set budget according to the requirement, it is very clear
that without budget it is impossible to run a business organization. When management try to
build budget, they consider expenses and plans in which they forecast every important details.
Budget can be modified according to the need of the business expense, this is flexible element
where firm try to remain strategic when planning for budget for certain business operation.
Capital income: Capital income is one of the most stable income that directly comes from
capital gains, these are income that comes from particular wealth itself. Focusing on specific
production and direct work, it is very important for firm to secure capital income for future
business projects (Birkenbach, Smith and Stefanski, 2020). Some of the most common example
of capital income is dividend or income from capital invested in the firm. These capital income
can arrive from certain area including income from working capital, debt, equity and trading
capital.
Company: Company is form of legal entity where group of individual form a business unit
conducting manufacturing of goods and services, these individual carry a business plan that need
every step to run in the market. It is very clear that company can be either sole trader or can be
either partnership which allow group of individual to work together and generate huge amount of
profit. Company is separate legal entity which have separate legal name and account but owner
have complete power to keep control over this separate legal entity.

CONCLUSION
From the above report it has been concluded that business finance is responsible for
creating economic forecasts, allocate resources, reviewing opportunities for debt and equity
financing, and some other functions related to the finance within an organization. The above
report mention a cash budget for the company for six months that is from July to December.
Further, the report also brief about the cash and profits, and also includes some difference
between gross and net profits, prepayment and accruals, drawing and expenses and many more.
Furthermore, the above report also illustrated some terms such as assets, venture capital,
dividend, ordinary shares, liabilities, company, capital income, preference share etc.

REFERENCES
Books and Journals
Atmaz, A. and Basak, S., 2022. Stock Market and No‐Dividend Stocks. The Journal of
Finance, 77(1), pp.545-599.
Bansal and et.al., 2019, December. Smart stock exchange market: A secure predictive
decentralized model. In 2019 IEEE Global Communications Conference
(GLOBECOM) (pp. 1-6). IEEE.
Birkenbach, A.M., Smith, M.D. and Stefanski, S., 2020. Feature—taking stock of catch shares:
lessons from the past and directions for the future. Review of Environmental Economics
and Policy.
Haji, A.A. and Ghazali, N.A.M., 2018. The role of intangible assets and liabilities in firm
performance: empirical evidence. Journal of Applied Accounting Research.
Metrick, A. and Yasuda, A., 2021. Venture capital and the finance of innovation. John Wiley &
Sons.