Cash Budget - Essay Example

CASH BUDGET ITEM Nov Dec Jan Feb Mar Beginning cash balance: 5000 2300 -1300 -2900 -3900 Cash Receipts 2000 Expected cash receipts: Cash Sales 400 1600 2100 1700 2200 Total cash collected 5400 5900 800 -1200 -1700 Expected Cash Expenses: Initial Stock 1000 Inventory 1000 2500 1500 2000 Payroll (Self) 800 800 800 800 800 Payroll (Employee) 400 400 400 400 400 Other Direct Expenses: Selling Expenses 5000 Rent for stand 900 225 Total cash Expenses 3100 7200 3700 2700 3425 Cash Surplus (or deficit) 2300 (-1300) (-2900) (-3900) (-5125) From the cash surplus calculated above, it can be seen that the amount of surplus is increasing on the negative side and the major reason for this is due to the fact that there is a mismatch in the expenses and the income and it is advised that Sam would have to approach the bank with a loan of around £6000 in order to be able to cover the expenses for the first 5 months of the business period. a) Other than the owners of a business, what other stakeholders are there and where do their interests in the business lie?

Apart from the owners of a business, the following are regarded as the primary stakeholders under a business set up. They are as listed below: Investors: Investors are the entities within a business that help fund the business initiative by purchasing an equity in the company tus helping in funding the company for further growth and expansion. As such, investors hold a share in the business and they expect some financial gain out of the activities of the business. Shareholders (assuming the owners are the people who created the business): a shareholder is an individual or a business entity that owns one or more shared of a joint stock company.

In this case, the shareholders may be termed as the owners of the business. But a subtle difference lies in the fact that the owners of the company are assumed to be the parties that actually participate in the business’ day to day activities unlike other shareholders who merely have invested in the company by buying its shares and as such, may be regarded as passive owners. Shareholders key interests are two fold in that they are primarily interested in the profit and growth margins of the company (which ultimately has an impact on the dividend).

Additionally, shareholders also have an added privilege of taking part in the decision making process of th organization. Employees: simply speaking, an employee is an individual who undertake the role of economic production. This is achieved by the owners of the company by hiring every employee to perform a specific task that is deemed necessary from the organization’s perspective. For the employee, the progress of the company is important as this is measured against individual performance, which determines the path of the employee through the organization’s hierarchy.

Government: a government is a legal authority that enacts laws and ensures that all rules legislations and policies are adhered to by the company. A government is an important stakeholder within an organization as it has to constantly monitor the welfare of all other stakeholders within the organization, which is achieved by ensuring whether all the legislations are met by the various elements of the company. b) Explain why there is a distinction between management accounting information and financial accounting information.

Accounting information is maintained and distinguished broadly from two different perspectives namely in the form of financial accounts and management accounts. While financial accounts are aimed at providing information to external users, managerial accounts work towards providing a deep insight to users internal to the company. Though one may argue that both work towards providing account information to the intended users, there are numerous differences that exist among them. Financial Accounts are usually yearly accounts that provide details of the financial performance of the company and the manner in which things have been in place during the same period.

This is termed as the trading period and the financial account is summarized by use of the balance sheet. Management accounts on the other hand are used by the company’s management to understand and devise the control and structure of the organization’s activities, structure and policies so as to improvise the decision making process. The sole intention of management account is to assist in minimizing costs and maximizing profits. Details of sales, profit and turnover serve the purpose of management information.

Financial Accounting is governed in a stricter manner in comparison to management accounts through the ue of regulatory entities such as accounting standards and company law. Another interesting attribute is that while financial accounts are devised by considering the business as a single process, management accounts are often used to study the performance or devise strategies for specific elements of the business process such as individual departments, products etc. management accounting is worked out by use of numerous variables such as cost, sales, workforce, time, effort etc.

financial accounting on the other hand, is highly streamlined and tends to focus on monetary elements alone. c) Discuss the limitations of the balance sheet in portraying the financial position of a business. A balance sheet is a snapshot of the value of the assets and liabilities of the organization and is usually worked out for a financial year. Essentially speaking, the assets and liabilities in a balance sheet are supposed to be balanced against each other. Speaking differently, the net worth of the business must equal the assets against the liabilities.

However, a balance sheet, despite its importance, is known to contain certain limitations. These are as discussed here under. One of the most limiting facts about balance sheet is that its construction, production and release requires time and this means that the balance sheet is available for review only after some time after the actual occurrence of the events concerning the assets and liabilities. As such, the production of a balance sheet induces a certain amount of delay, which is not good in some situations especially when the structure or dynamics governing the functioning of the organization have changes since the facts and details used for constructing the balance sheet were obtained.

As such, it is quite important to look into the delay factor and minimize it as far as possible. The second limiting point about balance sheets is their vulnerability to manipulations by the organization. It has been observed on numerous occasions that though there being the requirement that companies have to follow standard procedures and guidelines during the preparation on the balance sheet, it has been the case that the results are quite often modified as far as possible to project the best possible results, though the actual parameters may be different on the ground.

There are also possibilities that the assets of the company are evaluated incorrectly, in which case the balance sheet may result in erroneous results. The faults in estimating the value of assets lies in the kind of valuation method adopted by the concerned authority. A balance sheet is also limited in that it provides information on the liquidated value. In case of a takeover or a mortgage, this is not desirable as the area of interest in such cases would be the amount of profit that the business is capable of generating over a period of time.

As such, it can be seen that the balance sheet consists of some inherent defects, for which additional theories and techniques are utilized to overcome these limitations.