Part A - Multiple Choice
Circle the correct answer for the following multiple choice questions
1. Cashflow management means managing the cash moving in and out of your business.
a. True
b. False
2. Cash outflows usually occur after cash inflows.
a. True
b. False
3. Two important benefits of cashflow management are to identify future cashflow problems and to reduce the amount of time between inflows and outflows.
a. True
b. False
4. Three of the following are some of the most important components of cashflow. Which one is not?
a. Stock
b. Trade creditors
c. Fixed assets
d. Trade debtors
5. Too much stock may negatively affect your sales ability and your relationship with customers.
a. True
b. False
6. The purpose of cashflow planning is to ensure that the cash balance is enough to meet current and future financial requirements.
a. True
b. False
7. When preparing a cashflow budget you will need to:
a. estimate cash outflows for the period.
b. estimate cash inflows for the period.
c. estimate the future cash position of the business.
d. do all of the above.
8. The cashflow equation is as follows. Beginning cash balance + estimated sales - estimated purchases = ending cash balance
a. True
b. False
9. The sales forecast is not important in the preparation of the cashflow budget.
a. True
b. False
10. In a retail business the largest cash outflow is generally the cost of goods to be sold?
a. True
b. False
11. There are two correct responses to this question. The two main financial statements prepared by or on behalf of small businesses are the:
a. balance sheet.
b. profit and loss statement.
c. bank reconciliation.
d. cashbook.
12. If you purchase a computer for your business and pay for it in full at the time of purchase with a business cheque, which of the following are the correct debit and credit entries?
a. Debit the asset (computer) account and credit the creditors account.
b. Debit the creditors account and credit the asset (computer) account.
c. Debit the asset (computer) account and credit the asset (bank) account.
d. Debit the expense account and credit the asset (bank) account.
13. is concerned with the acquisition, financing, and management of assets with some overall goal in mind.
a. Financial Management
b. Profit Maximisation
c. Agency theory
d. Social Responsibility
14. Which of the following documents cannot be used to verify income earned?
a. Bank deposit books
b. Bank statements
c. Cash register tapes
d. Cheque butts
15. If you knew that your supplier was going to be unable to meet your supply requirements in three months' time what would you do?
a. Place a larger order now to cover that shortfall
b. Look for other suppliers to meet your requirements
c. Advise your manager and other managers who rely on those supplies
d. Talk with the supplier and try to collectively resolve the issue
e. All of the above.
16. Which of the following actions will not improve the net cash flow of a business in the short term?
a. Selling idle assets
b. Increasing the bank overdraft
c. Deferring paying creditors
d. Reducing owners drawings
17. An example of an operating budget is a
a. Sales budget
b. Budgeted income statement
c. Budgeted cash flow statement
d. Budgeted balance sheet
18. Budget forecasts should be based on:
a. Desirable outcomes
b. Realistic expectations
c. Optimistic expectations
d. Conservative expectations
19. An analysis of the financial reports will help you to:
a. Understand financial results
b. Identify operating weaknesses
c. Plan financial performance
d. Do all of the above
20. The bottom-line financial result found in any income statement is:
a. Net profit
b. Gross profit
c. Net assets
d. Sales
21. Most profitability ratios are calculated using financial information found in the:
a. Income statement
b. Balance sheet
c. Cash flow statement
d. Funds statement
22. Financial position ratios are calculated using financial information found in the:
a. Income statement
b. Balance sheet
c. Cash flow statement
d. Funds statement
23. A balance sheet of a business measures its:
a. Net profit
b. Net cash flow
c. Net assets
d. Goodwill value
24. Sales receipts and stock purchase payments are examples of cash flows from:
a. Operating activities
b. Investing activities
c. Financing activities
d. None of the above
25. A business shows the following result for a period:
|
Revenue
Cost of goods sold
|
$200,000
$150,000
|
|
Operating Expenses
|
$100,000
|
The business has made a: $100,000
a. Net profit of $50,000
b. Net profit of $100,000
c. Net loss of $100,000
d. Net loss of $50,000
26. The main purpose of any business activity is to:
a. Survive
b. Make a profit
c. Expand and grow
d. Satisfy legal requirements
27. Financial data are collected from:
a. Financial records
b. Financial reports
c. Financial schedules
d. Financial statements
28. An annual financial report is prepared for a 12-month period, which is usually:
a. 1 January to 1 July
b. 30 June to 1 July
c. 1 July to 30 June
d. None of the above
29. A partially completed cash flow plan is shown as follows:
|
|
Month 1
|
Month 2
|
Month 3
|
|
Opening cash position
|
-$600
|
|
|
|
Total receipts
|
$3020
|
$4680
|
$3716
|
|
Total payments
|
$2840
|
$3217
|
$5960
|
|
Net cash flow
|
|
|
|
|
Closing cash position
|
|
|
|
Using the data above, the expected cash position at the end of month 2 is:
a. $1043
b. $1463 c. $2303
d. None of the above
30. Refering to the same data in Q29, the 3 month expected cash flow trend is:
a. Favourable (upward)
b. Unfavourable (downward)
c. Neither favourable nor unfavourable (steady)
Assessment 2
Part B - Written or Oral Questions
Answer the following questions in the spaces provided.
1. You have started a restaurant with your brother and your sister. At the end of the financial year total sales revenue was $160,000 and net profit after tax was $20,000. Your sister has suggested that the profit made during the year should be used to redecorate the premises; but your brother suggested that the money should be used in purchasing a new woodfire oven, so you could start selling take away pizzas. They have approached you in order to help on deciding how the $20,000 should be allocated for the next financial year.
Your sister claims that if the $20,000 is used in redecorating the premises you could increase menu prices by 20%.
Your brother argues that if a new wood fire oven is purchased, the restaurant would be able to sell at least 150 pizzas per month for at least $15.00 each pizza (total cost per take away pizza $4.50).
a. What project would you choose? Why? How would you convince your shareholders that your choice is the right priority for the allocation of the $20,000?
b. Who else would you consult with before making a decision between redecorating or purchasing equipment?
c. What records would be necessary to keep if the funds are allocated to re-decorating the restaurant?
2. Explain why budgeting is important and why it should be implemented despite the size of the organisation.
3. What are the first and the last days of the Financial Year for a restaurant operating in Australia?
a. How would these dates affect the preparation of your sales budget?
4. You are taking over your family business. All financial information is kept manually by your father (the owner) of the restaurant. The purchase
budgets are currently produced manually by your mother and the financial information/budget forecasts are constantly inaccurate.
a. What technological recommendations you would make to the owners?
b. What software(s) would you recommend in order to improve the current situation?
c. Describe the main advantages of using a software for developing and monitoring budgets in comparison to keeping manual records.
5. The following data was extracted from the Sales Budget of ABC Pizza Plaza. Please refer to the table below in order to answers questions a and b.
|
Financial Year
|
Budgeted
|
Actual
|
|
2007/08
|
$ 350,000
|
$290,000
|
|
2008/09
|
$400,000
|
$250,000
|
a. Calculate and classify the variances as Favourable or Unfavourable for both years.
b. Describe 3 different events that could possibly justify these variances and suggest relevant approaches that management could adopt in order to effectively manage the deviations found.
6. Adam Smith was responsible for managing his brother's Coffee Shop for 2 months while his brother went on holidays. Unfortunately his brother did not budget very well for the weekly beverage supply and Adam was, every week, short of beverages. In order to solve the last minute beverage shortages Adam made weekly purchases in the local supermarket. Adam paid for the goods on his credit card and did not bother keeping the invoices. According to this scenario explain:
a. What are the legal implications/record keeping requirements that were not met by Adam?
b. What techniques would you suggest to the owner of the coffee shop in order to improve the budgeting accuracy for purchases of
beverage stock?