Financial cash receipts and cash payments book

Financial Management

Assignment1

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Section.A.

Question.1.

1.1.
Liquidity
is the ability of the business to honor its short term financial commitments,
as they become due, at all time.

1.2.
Bridging
capital refers to the additional amount of assets/money that the firm needs
from time to time for ex. For the purchase of an additional delivery vehicle

1.3.
Creditor
is someone the firm owes money for goods supplied to it. A creditor is credited
with the sales made

1.4.
Indirect
costs will arise even if no production takes place. This is total the total of
all manufacturing costs excluding direct materials and direct labor. These
costs are collectively known as overheads

1.5.
Bank
reconciliation is a comparison of the firms bank statements with the cash
receipts and cash payments book to ensure that the final balance in the book is
correct (Also called cash book reconciliation)

1.6.
Revolving
credit is credit extended by a bank or other lending institution that’s often
used by large businesses. Customer/debtor is restricted to a maximum limit of
the accumulated debt owed. As long as this limit is not exceeded, the
difference between the limit allowed and the actual amount owed is available as
credit

1.7.
Capital
gains tax is a tax you pay on the profits you make on your assets. You only
become liable for it when you sell an asset. Tax is only paid on the profit you
make, if any

1.8.
Estate
duty is income which accrues to the estate after the death of the deceased but
before the distribution of the assets to the beneficiary’s, is dealt with under
section 25 of the income tax Act.

1.9.
Master
budget consists of a budgeted income statement and a budgeted balance sheet

1.10.       
Budgeting
limiting factor is the factor that limits the activities of an organization.
May be a customer demand, shortage of raw materials, production capacity, labor/finances

Section.B.

Question.2.

1.1.    
Types of
investment:

1.1.1. 
Retirement
annuities

1.1.2. 
Life
assurance

1.1.3. 
Pension
funds

1.1.4. 
Unit trust
and the stock market

1.1.5. 
Property/
own business

 

1.2. Reasons for drawing up a budget

– Every business has to work according to a budget to make sure there is
enough cash to pay creditors and that cash is not tied up in excessive
purchases of stock.

– A budget is an instrument that allows management to evaluate whether
goals have been achieved

– By making comparisons between actual results and budgeted results (a
budget is a aid to financial control)

– Budget’s also serve as an aid to financial planning because it
includes the capital requirements and financing need of the business

– Budgets create a cost awareness amongst staff. They control costs and
identify trends and problems that could occur in the future

– Budgets co-ordinate the goals of the business and contribute to the
effective use of the resources at the business’ disposal

– It also provides the opportunity to take external factors into account
during financial planning, for ex. Interest rates and competitor’s prices

1.3. Three main activities of financial management:

            1. Financial planning:
Where budgets are the most common product of the financial planning               function. In addition, financial
planning includes the developing and implementing of an          appropriate book keeping system, and deciding on workable
pricing and credit control     procedures

            2. Financial
organizing: Entails the responsibility to arrange activities, equipment, and
employees in the most effective manner. Delegating financial responsibility