8 Cash Management

Topics: Income statement, Cash flow, Corporate finance Pages: 56 (2465 words) Published: December 7, 2014
Managing Finance
Cash Management

Learning Objectives
1. Describe the various receipts and payment
2. Explain the difference between cash flow
and profit
4. Explain the difference between cash flow
accounting and accruals accounting
5. Understand why a company holds cash.
6. Explain various cash management
objectives and decisions.

BM059-3-2-MF Managing Finance

Cash Management

Slide 2 of 56

Learning Objectives
6. Describe the role of treasury function
7. Understand management of surplus
cash
8. Prepare a cash budget
9. Understand the difference between a
cash budget and a budgeted profit and
loss account.
10. Prepare a balance sheet forecast
BM059-3-2-MF Managing Finance

Cash Management

Slide 3 of 56

Key Terms

BM059-3-2-MF Managing Finance

Cash Management

Slide 4 of 56

Slide Contents
1. Cash Flow
2. The Main Types of Cash Receipts and
Payments
3. Cash Flow and Profit
4. Why a Company Holds Cash?
5. Cash management
6. Objectives of a Cash Budget
7. Types of Cash Budget
8. Format of Receipts and Payments Budget
9. Preparing a Receipts and Payments Budget
10. Balance Sheet Forecast
BM059-3-2-MF Managing Finance

Cash Management

Slide 5 of 56

1. Cash Flow
• Cash – mainly money in bank account, but
also includes notes and coins
• Cash flow – a term for receipts and
payments of cash
• Net cash flow – the difference between the
cash received in a period and the cash
paid out in the same period.

BM059-3-2-MF Managing Finance

Cash Management

Slide 6 of 56

2. The Main Types of Cash
Receipts and Payments





Revenue receipts and payments
Capital receipts and payments
Drawings/dividends and disbursements
Exceptional receipts and payments

BM059-3-2-MF Managing Finance

Cash Management

Slide 7 of 56

Revenue Receipts and Payments
• Cash receipts and payments arising from
normal course of business.
• Revenue receipts are cash receipts from:
– Cash sales, and
– Payment by trade debtors.

• Revenue payments includes payment:
– To trade creditors
– To employees for salaries and wages
– For business expenses
BM059-3-2-MF Managing Finance

Cash Management

Slide 8 of 56

Capital Receipts and Payments
• Capital receipts
– Receipts of long term funds or cash from the
sale of fixed assets or long term investment.
– The owners of a business put new capital into
the business in the form of new cash
– Long term loan to raise cash in a business

• Capital payments
– Payments for capital expenditure
– Repayment of a long term loan
BM059-3-2-MF Managing Finance

Cash Management

Slide 9 of 56

Drawings/Dividends and
Disbursements
• Drawings – payments out of profits to a sole
trader or partners in a partnership.
• Dividends – payments out of profits to the
shareholders of a company.
• During any financial year, a company might
pay out in dividends to its shareholders:
– A final dividend for the previous financial year,and
– An interim dividend for the current financial year.
BM059-3-2-MF Managing Finance

Cash Management

Slide 10 of 56

Drawings/Dividends and
Disbursements
• Disbursement – simply means a payment
and it includes the payments of:
– Interest on loans and overdrafts
– Other debts for which interest is payable
– Taxation payable by a company out of its profits
(corporation tax)

BM059-3-2-MF Managing Finance

Cash Management

Slide 11 of 56

Exceptional Receipts and
Payments
• There is always a possibility that there will
be a significant movement of cash receipts
and payments because of unusual or
exceptional transaction that does not fall
into any of the categories described earlier.

BM059-3-2-MF Managing Finance

Cash Management

Slide 12 of 56

3. Cash Flow and Profit
• In short term:
– A business can make a loss but still have
enough cash to survive, receiving more cash
than it pays.
– A business can be profitable but run...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Cash Management Objective Essay
  • Essay about Cash Management Summary
  • Basic Cash Management Process Essay
  • the effectiveness of cash management policies a case study of hunyani flexible products Essay
  • Essay about Cash Management
  • Essay on Nfl Cash Mgmt
  • Cash Management Essay
  • Cash Management Essay

Become a StudyMode Member

Sign Up - It's Free