2) Why is a Cash Budget so vital to a company? A cash budget allows a company to establish the amount of credit that it can extend to customers without having problems with liquidity. It also helps you to avoid having a shortage of cash when you have numerous expenses. If you cannot pay your expenses this means you have a cash shortage. Without setting a cash budget for example, spending five dollars a day on lunch seems fairly reasonable.
Generally, free cash flow is cash flows provided by operating activities less cash flows used by investing activities for the purchases of plant, property and equipment and the repayment of long-term debt. If there is cash left over, it is “free” to be distributed to the owners of the entity or reinvested in the business. Over time, the entity that generates the highest free cash flow will be the most successfully financial company in terms of return on the owners’ investments. There are generally a number of differences between cash provided by operating activities and net income. The most obvious differences are that net income is presented on an accrual basis and that net income includes non-cash expense and income items.
FP101 Week Two DQ 1 Post a 150- to 300-word response to the following discussion question by clicking on Reply: Refer to p. 87–93 of Personal Finance. Identify two cash management products and provide a short description of each. Do you have any experience with these products? Account Reconciliation and Controlled Disbursement Account Service are both important and beneficial to a company by managing people’s money spending situations. It is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the balances match at the end of a particular accounting period.
Cash flow is more vibrant and holds to the true value. Cash flow is concerned with the movement of money in and out of a business. The concept of accounting profit can be somewhat narrow with its results only looking at income and expenses at a certain point in time and is taxable. By comparing the information provided from the two reports the free cash flow information from will provide the company with a much truer understanding how the project will be performed. Comparing the company’s net income to its actual cash generated, an investor can determine whether the company is more aggressive or conservative in accounting for its performance.
The Roth IRA had to open at least five tax years. When a qualified distribution occurs, the earnings and contributions are tax free without penalty. Now if a non-qualified distribution occurs, there could be a 10% penalty, unless the owner is eligible for one of the eight exemptions spoken about earlier. The owner is still allowed to contribute after the age 70 ½, but is required to withdraw a certain amount at a specified time each
Cost savings can be computerized accounting programs reduce staff time doing accounts and reduce audit expenses as records are neat, up-to-date and accurate. This system allows them to record business transactions accurately and generate financial reports quickly for management review. However if Rumble carry less transactions this means they won’t need to have computerised accounting system because it is very expensive for them to use. In this case it is best for them to have manual accounting system because it is reliable, cheap and easy to use. They can easily do their transaction without problems.
b) GNB has lower credit risk as compare to its competitors because its loan portfolio constitutes from largely small operating firms who can pay their liabilities with their cash flows and collaterals are mostly second source of financing the loan in the case of default. GNB also have lower liquidity risk because it does not have any problem in attracting long term depositors and collecting its loan back on time as long as the economy is going well.
Accrual and Cash Basis Accounting Methods Accrual and Cash Basis Accounting Methods One of the first considerations in starting a new business is to decide which accounting method is to be used when recording revenue and expense transactions. The choices given to American businesses by the Internal Revenue Service are either the Accrual Basis or the Cash Basis method of accounting. With the Accrual method, income and expense transactions are recorded as they occur. This means that there is no waiting for the money to change hands from the customer. (Gilmore & Miller, Oct 2003).
This potential error is eliminated through the automated mathematical system which never makes a mistake, making the accuracy very advantageous. This advantage in turn saves the company money as mistakes create a chain reaction, making it very difficult to fix. The limitation of human errors is one of the best advantages that come with computerised accounting systems. A second benefit of using a computerised accounting system would be that is saves the company a considerable amount of money. Lower cost can be brought about through computerised accounting systems as it is far more efficient.
Offshoring can also negatively affect businesses. The Advantages: For some businesses, the advantages of offshoring may overcome the disadvantages. And some of those advantages are: • The first and most important advantage is the cheap labor costs. The employees of a Chinese supplier selected by Boeing earned $120 per month compared to $3,530 per month earned by Boeing employees in Seattle. • Offshoring some of the non-core activities of a business provides for more time to spend concentrating on the core business processes and thus enabling more innovation.