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Cash Budgeting and its Advantages for Business Operations

Prepare a cash budget for Orkin Ltd for February, March, and April, and discuss ways to solve cash shortfall problem and advantages of preparing cash budget.

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Added on  2023-06-15

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This article discusses the importance of cash budgeting for businesses and its advantages. It includes a statement showing cash budget, ways to handle cash shortfall situations, and the benefits of self-evaluation. The subject is accounting, and the course code and college/university are not mentioned.

Cash Budgeting and its Advantages for Business Operations

Prepare a cash budget for Orkin Ltd for February, March, and April, and discuss ways to solve cash shortfall problem and advantages of preparing cash budget.

   Added on 2023-06-15

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Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the university:
Authors Note:
Cash Budgeting and its Advantages for Business Operations_1
1ACCOUNTING
Table of Contents
Answer to Question a)................................................................................................................2
Answer to Question b)...............................................................................................................2
Answer to Question c)................................................................................................................3
Reference....................................................................................................................................5
Cash Budgeting and its Advantages for Business Operations_2
2ACCOUNTING
Answer to Question a)
Statement showing cash Budget
Particulars February March April
Receipts
Cash Sales (70%) $119,000.00 $140,000.00 $161,000.00
Received from debtors after one month $45,000.00 $51,000.00 $60,000.00
Total Receipt (A) $164,000.00 $191,000.00 $221,000.00
Payments
Payment for purchase after 2 months $140,000.00 $80,000.00 $100,000.00
Wages and salaries $40,000.00 $50,000.00 $50,000.00
Overhead $26,000.00 $30,000.00 $30,000.00
Rent in advance $18,000.00
capital Expenditure $700,000.00
Total Payments (B) $206,000.00 $878,000.00 $180,000.00
Net cash generated (A-B) -$42,000.00 -$687,000.00 $41,000.00
Opening Balance $70,000.00 $28,000.00 -$659,000.00
Closing balance $28,000.00 -$659,000.00 -$618,000.00
Note:
In order to calculate the overhead expenditure the depreciation and the rent amount has been
deducted.
Answer to Question b)
On analysing the current situation of Orkin Ltd it can be seen that the cash budget
indicates that the cash outflow will be more than the cash inflow. This is a serious concern as
the shortfall of cash reduces the liquidity of the business. The lack of liquidity in turn affects
the operational capability and profitability of the business (Braun et al. 2014). In general, it
can be said that a business can handle the cash shortfall situations by using the following
means:
Cash Budgeting and its Advantages for Business Operations_3

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