Business Unit 2 P6 Budgeting, break-even, cash flow (Explain the purpose and contents of budgets as a means of exercising financial control)
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Course
Unit 2 - Business Resources
Institution
Pearson (PEARSON)
BTEC Business Extended Diploma
Unit 2: Business Resources P6
This is the complete version of the coursework assignment, which has already been marked and approved by a teacher.
P1 P2 P3 P4 P5 M1 M2 M3 D1 D2w
(Explain the purpose and contents of budgets as a means of exercising financial control)
Budgeting
What is a budget?
Budget – is a financial document used to project future income and expenses.
Budgeting may be carried out by individuals or by companies to estimate whether or not they can
continue to operate with its projected income and expenses.
Different budgets can be created depending on what particular aspect of the business requires focus.
Budget gives business owners a ‘’map’’ to
guide them from current operations toward
the growth and expansion they wish to
make for the business, and allow
achievement of these goals through
showing exactly how much money a
business should keep on hands at any given
time and how much is available for
reinvestment into company’s growth.
, Cash budgets and Cash flow
Cash flow refers to the movement of cash into and out of a business. It is usually
measured during a specified, limited period of time. Measurement of cash flow can
be used for calculating other parameters that give information on a company's value
and situation.
Inflow – income of money into a company (Revenue, Loans, Grants, Investments,
etc…)
Outflow – the money which company spends (Wages, dividends, taxes, etc…)
Net Cashflow = Inflow - Outflow
Cash budgets are mostly used to estimate whether or not a company
has a sufficient amount of cash to fulfil regular operations. Cash budget
is very important, it allows a company to establish the amount
of credit that it can extend to customers without having problems with
liquidity. A cash budget helps you avoid having a shortage of cash
during periods of numerous expenses. If company cannot pay
its expenses because it’s have a cash shortage, company must resolve
this problem right away by bringing in more revenue, deferring or
eliminating some of your costs or being approved for a larger loan from
your bank. Cash budgets are used to show in advance what the likely
cash balance you will have at the end of each month\year. Also they do
increase management awareness of potential shortages and help to
avoid problems associated with lack of cash to pay company’s debts.
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