D076 QUIZ FLASHCARDS VERIFIED

A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales. Why would the firm receive $10,000 less cash than its monthly sales? - Because the firm did not make all sales on cash (Some sales are made on credit rather than cash, and a portion of credit sales are collected in the following months after the sales.) How can you use the envelope method of budgeting to monitor cash flows? - Put the amount of money budgeted for each category of your expenses into labeled envelopes and then spend the money in each envelope on expenses in that category. (This method will help you plan and monitor your cash flows._ How should you go about making changes to your budget? - Prioritize the changes you want to make and then implement them gradually one by one to make sure they work. (Revising your budget in this way will help changes go smoothly and help your company or family members become familiar with the changes.) In which situation would a firm need to borrow cash? - When the beginning cash balance plus the net cash is less than the minimum cash balance required for the month. (This indicates to a firm that additional financing will be needed during the period to operate effectively.) Jerry wants to begin budgeting his money. What are three principles that he should know before beginning the budgeting process? - Keep records; understand the key areas of savings, expenses, and income; and eliminate consumer debt. (These are three of the six principles of budgeting. The other three are know yourself; develop savings, income, and expense strategies; and use a method that meets your needs and objectives.) What are long-term financial forecasts used for? - Making investment and financing decisions. (Whatever growth a firm anticipates must eventually be financed one way or another. Any investment in capital that exceeds what the firm retains from profit generates a discretionary financing need.)