Financial Management: Cash Flow, Budgeting, and Decision Making

This assignment solution covers key aspects of financial management, including cash flow management, budgeting, and financial statement analysis. It addresses the importance of cash flow, its components, and its role in planning. The solution also discusses budgeting processes, variance analysis, and the use of technology in financial management. Furthermore, it provides practical examples and recommendations for improving financial accuracy and decision-making in a retail business context. The document is available on Desklib, a platform offering study tools and resources for students.

Financial Management

TABLE OF CONTENTS
ASSESSMENT 2.............................................................................................................................3
Part A..........................................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................3
3...................................................................................................................................................3
4...................................................................................................................................................3
5...................................................................................................................................................3
6...................................................................................................................................................4
7...................................................................................................................................................4
8...................................................................................................................................................4
9...................................................................................................................................................4
10.................................................................................................................................................4
11.................................................................................................................................................5
12.................................................................................................................................................5
13.................................................................................................................................................5
14.................................................................................................................................................5
15.................................................................................................................................................5
Part B...........................................................................................................................................6
1...................................................................................................................................................6
2...................................................................................................................................................7
3...................................................................................................................................................7
4...................................................................................................................................................7
5...................................................................................................................................................8
6...................................................................................................................................................9
REFERENCES..............................................................................................................................10

ASSESSMENT 2
Part A
1.
Cash flow management is being defined as the process through which company can analyse and
track how much money is flowing within business. The cash flow management is important for
the business to be managed as it will assist the company in mitigating the risk of no cash with the
company and to have an optimal level of cash within the company. this is necessary as there need
to be present a proper flow of cash in order to make the company successful.
2.
The major benefit of cash flow management is that it will assist the company in verifying the
profitability and liquidity of the company. the reason underlying this fact is that it will assist
company in identifying the actual position of company.
In addition to this, another benefit of cash flow management helps company in planning and
coordinating all the business activities in proper and effective manner.
3.
The three major components of cash flow involve-
Operating activities
Investing activities
Financing activities
4.
The major purpose of using cash flow is that company can plan its cash inflow and cash outflow
of the company. the reason underlying this purpose is that without cash no business activity can
be accomplished. Hence, this will provide a base to the company that they must effectively
manage all the cash and related activities.
5.
At time of making the cash flow budget the company need to estimate all the cash inflows and
outflows for the effective management of the business. this is estimated because of the reason
that the budget is prepared on the basis of estimation only and because of this the each and every
element within the budget is estimated only. Majorly in cash flow budget all the element

involves either cash inflow or cash outflow. Hence, for this it is estimated at time of making the
cash flow budget
6.
Beginning balance + Estimated sales – Estimated purchase = Ending cash balance
7.
With respect to the retail business, the component which is having the largest outflow of cash is
the purchase of inventory. The reason pertaining to the fact is that when the retail business
operates then it cannot do without the inventory. Hence, it is very crucial for the business that
they purchase the inventory and as compared to other activities, purchase of inventory is the one
which involves maximum of the outflow of cash.
8.
The two financial statements which are generally being prepared by the small business involves
profit and loss account and balance sheet. The former relates with calculation of the profit earned
or loss incurred during the financial period. On the other hand, latter deals with the balance of all
the liabilities and asset which are being owned by the company at a point of time.
9.
Account Debit, $ Credit, $
asset 1000
Cash at Bank 1000
10.
In case it is known that the supplier is not able to meet the supply requirement in the frame of
three months then first thing which need to be done is the to communicate with the supplier. The
reason underlying this fact is that when the company will communicate with the supplier then
they can outline the problem being faced by the company in supplying the data.
In addition to this the next step which can be undertaken is to install a good inventory system
within the business. the reason underlying this fact is that when the business will be having good
inventory system then company will come to know about the stock present and how much is
required.

11.
For improving the net cash flow of a business in short term it is necessary for the company to
provide discount to the parties or consumers who will pay or clear the amount in less time. This
will assist the company in gaining the amount before time. The reason behind this fact is that
when the people will be getting discount then they will try to make their payment fast and avail
the discount.
12.
The analysis of the financial reports helps the company in analysing the actual financial position
of the company. for the success of the company it is very crucial for the business that they must
evaluate the financial position in order to increase profitability of company. the reason
underlying this fact is that company will come to know about the profit earned or loss incurred
along with statement of asset and liabilities. In addition to this, the analysis of the financial
reports will help company in effective decision making. This is pertaining to the fact that in case
profits of company are not good then they take decision to improve the profitability.
13.
The example of operating activity in cash flow statement involves account receivable, inventory,
net income and others.
14.
Revenue $200,000
Cost of Goods Sold $150,000
Operating
Expenses $100,000
Net Income +/- -$50,000
15.
Month 1 Month 2 Month 3
Opening cash
position -$600 -$420 $1,043
Total receipts $3,020 $4,680 $3,716
Total payments $2,840 $3,217 $5,960
Net cash flow $180 $1,463 -$2,244

Closing cash
position -$420 $1,043 -$1,201
Part B
1.
REDECORATION PIZZA OVEN
Revenue 160000 Revenue 160000
Profit 20000 Profit 20000
Additional Revenue for
redecoration 32000 Additional Revenue
from Pizza sale 27000
Total 212000 Total 207000
Less Additional food
Cost 0 Less Additional food
Cost 8100
Total Profit 212000 Total Profit 198900
A
Hence, based on the above data it is clear the option of redecoration will be suggested to be
selected. The reason underlying this fact is that when the company will be investing $20000 into
the redecoration option then the company will analyse the fact that it is more profitable option
for earning more profit. Hence, for convincing the shareholder to allocate $20000 into the
redecoration option is to make them aware that this option is more profitable in comparison to
others.
B
In addition to the shareholders, the other person who will be consulted before taking the decision
between the redecorating and purchasing equipment is financial manager. The reason underlying
this fact is that when this situation will be provided to financial manager. The financial manager
will be approached in this situation as they have proper knowledge to judge the fact that whether
the project is worth investment or not.
C

In case the fund is allocated to redecorating the restaurant then there will be various records
which the company will need to keep are the total capital invested, all the invoices received and
paid, profit and loss account.
2.
There are various reasons for which preparation of budget is found to be important in
organizational process. It provides assistance in ensuring enough money required for all
functional areas. In addition to this, budgeting aids in gaining ability to get prior information
regarding requirements of funds so that appropriate measure can for arranging funds can be
derived (Lima and et.al., 2017). Proper allocation of available resources and optimum utilization
can be ensured by to have significant processing by accomplishing objectives of financial goals.
Control and monitoring via comparing estimated with actual so that lacking areas. This permits
company implement corrective measures in turn higher modified performance can be derived.
To achieve these benefits, it becomes essential for the companies to pay attention on getting
ability to make proper evaluation of needs, allocation and optimum utilization of resources.
Implementing effective type of budget is important to conduct strategic planning for meeting
requirements of company.
3.
The first and last date of financial year for restaurants is 1 July to 30 June. There are
various reasons behind considering this as financial year as it helps to get accurate 12 months
accounting period. The main reason for choosing this as financial year to make sure that all
restaurants can update their current and fixed resources in turn fair position identification can be
exerted. This is important to follow the mentioned period as Parliament typically sit during
MAY and June to pass Budget so that from 1 July new polices can be applied.
4
a)
There are various technologies that can be recommended to the owner of restaurant
includes robotic process automation, advanced data analytic, artificial intelligence, etc. It is
suggested to the business owner to have Salesforce financial service cloud (SFSC). It will be
beneficial for the enterprise to get appropriate processing of business transaction recording,
analysing and interpreting.
b)

There is various software which can contribute in attaining, accurate, reliable and relevant
information so that objectives of organization can be accomplished. In addition to this, software
like quick books, MYOB, Xero, Sage, Saasu, Zoho Books, Hubble, Vena solutions, Questica
Budget rounded, wave, etc. can be utilized to accomplish goal of gaining competitiveness by
preparing budget.
c)
There are various advantages of using software for developing and monitoring budgets
in comparison to keeping manual reports. The main benefits comprise having fewer efforts,
higher accuracy, reliability, etc. in addition to this, increased competitive advantages by having
on time data availability for making decision. Detailed planning through getting integrated
budgeting with accurate report analysis become possible (Bui and et.al., 2020). Improved
integration of different sub budgets helps in conducting concise decision formulation by ensuring
involvement of all relevant aspects. Proper evaluation of current financial position and accurate
estimation of required funds become possible by having various software to decline possibilities
of errors and mistakes.
5.
A
Financial
Year Budgeted Actual Favorable/
Unfavorable
2007/08 $350,000 $290,000 -$60,000
2008/09 $400,000 $250,000 -$150,000
B
There is different reason for which the variance can occur within the working of the company.
hence, it is essential for the company that they must effectively manage these variances to
overcome the problem. The reason for variance to occur are as follows-
Error is the most common reason for which the company is facing the variance within their
performance. the reason pertaining to this fact is that many a times wrong transaction is being
entered and due to this variance occurs.
Another reason for variance is changing business condition and this can also cause severe
variance within the performance. the reason underlying this fact is that it is possible that

company is working with some product and after sometime the product become obsolete and this
might cause variance in performance.
Along with this, another reason for the variance to occur is the unmet expectation of the
employees. The reason underlying this fact is that when the employee is having some
expectation and it is not met then it affects the working efficient and this might cause variance.
The relevant approaches through which management can manage the deviation or variance is by
effective monitoring of the plan. The reason pertaining to the fact is that when the proper
monitoring will be ensured then this will definitely result in effective accomplishment of the
project.
6.
a.
the major legal implication requirement which was not met by Adam was that he did not kept the
invoice with them while making the payment. This is the major implication of record keeping
which he must have followed in order to ensure proper accounting practices.
b.
in order to improve the budget accuracy, it is advisable to the owner of coffee shop that they
must record all the sales taking place within the business. this is necessary because in case the
sales will not be recorded in proper and effective manner then this will not provide actual
position of company. along with this it is also advisable to the company that they must also work
on purchasing good in bulk. The reason pertaining to this fact is that when the goods will be
purchased in bulk then company will gain the benefit of economies of scale.

REFERENCES
Books and Journals
Ameliawati, M. and Setiyani, R., 2018. The influence of financial attitude, financial
socialization, and financial experience to financial management behavior with financial
literacy as the mediation variable. KnE Social Sciences, pp.811-832.
Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management. Cengage
Learning.
Bui, T.D. And et.al., 2020. Challenges and trends in sustainable corporate finance: A
bibliometric systematic review. Journal of Risk and Financial Management, 13(11), p.264.
Bulturbayevich, M.B. and et.al., 2020. Modern features of financial management in small
businesses. International Engineering Journal For Research & Development, 5(4), pp.5-5.
Lima, A. C and et.al., 2017. A qualitative analysis of capital budgeting in cotton ginning plants.
Qualitative Research in Accounting & Management.
Prihartono, M.R.D. and Asandimitra, N., 2018. Analysis factors influencing financial
management behaviour. International Journal of Academic Research in Business and
Social Sciences, 8(8), pp.308-326.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Siminica, M., Motoi, A.G. and Dumitru, A., 2017. Financial management as component of
tactical management. Polish Journal of Management Studies, 15.
Titman, S. and Keown, A.J., 2018. Financial management: Principles and applications. Pearson
Education, Inc..