Question

1.       Select the group of words missing from the statement below about the nature of cash budgets:

“Cash budgets are prepared to reflect the estimated cash ______ and _______ for the period to be covered by the budget. Clearly a projected _______ cash balance will require corrective action. Even if the cash budget predicts a _______ net balance, it may be necessary to review it to take into account any potential ________ in the expected cash flows or to provide a buffer for any unexpected cash payments which may not be __________ in nature.”

a)      Income, Expense, Negative, Positive, Increases, Operational

b)      Receipts, Costs, Positive, Negative, Volatility, Capital

c)       Income, Payments, Total, Upside, Increases, Capital

d)      Receipts, Payments, Negative, Positive, Volatility, Operational

2.       Complete the following sentence using the most appropriate phrase of those shown below:

“Any business may be able to withstand the impact of negative cash flow for short periods of time, provided that ……….”

a)      salary and staff training costs are reduced.

b)      cash reserves are adequate to cover any operating cash shortfall.

c)       service levels to customers are reduced.

d)      additional price increases are made to products and services.

3.       Which of the statements below is (are) wrong in the context of the hospitality business?

a)      Monthly cash flows for any year can be accurately estimated by dividing annual income and expense items by 12.

b)      Monthly cash flows should be estimated individually by type of inflow and outflow in order to estimate net monthly cash balances.

c)       Using applicable depreciation rates for accounting purposes is a reliable way to forecast capital expenditure requirements.

d)      The Receipts and Payments approach to cash budgeting is more useful if the planning horizon is less than a month.

4.       Which of the following is not a consideration in making investments with surplus cash?

a)      Risk v Return

b)      Liquidity

c)       Timescale for expected return

d)      Transaction costs

e)      Relative size of investment

f)       None of them

5.       When is the use of the Adjusted Net Income Approach to cash budgeting generally more appropriate?

a)      When the period of the cash budget is less than 3 months

b)      When there is no bank reconciliation available

c)       When the period of the cash budget is more than 6 months

d)      When the forecast net income for the business is positive

Answer 1

Dear student, only one question is allowed at a time. I am answering the first question

1)

Cash budgets are prepared to reflect the estimated cash Receipts and Payments for the period to be covered by the budget. Clearly a projected Negative cash balance will require corrective action. Even if the cash budget predicts a Positive net balance, it may be necessary to review it to take into account any potential Volatility in the expected cash flows or to provide a buffer for any unexpected cash payments which may not be Operational in nature.

So, as per above explanation, option d is the correct option