Cash Chapter-

Budget 15

1) A cash budget prepared for the forthcoming three months show a substantial cash
surplus in the first two months. Suitable action would be to;
i. Pay suppliers early to receive a cash discount
ii. Buy new plant & machinery
iii. Invest in treasury bills
a) (i) and (ii)
b) (i) and (iii)
c) (ii) and (iii)
d) (i) only

2) Vincent is preparing a cash budget for July. His credit sales are as follow;
$
April (actual) 40,000
May (actual) 30,000
June (actual) 20,000
July (estimated) 25,000
His recent debt collection experience has been as follows;
Current month’s sales 20%
Prior month’s sales 60%
Sales two months prior 10%
Cash discounts taken 5%
Irrecoverable debts 5%
How much many Vincent expect to collect from credit customers during July?
a) $18,000
b) $20,000
c) $21,000
d) $24,000

3) DRF’s projected revenue for 20X9 is $28,000 per month. All sales are on credit.
Receivables’ accounts are settled 50% in the month of sale, 45% in the following month,
and 5% are written off as irrecoverable debts after two months. What are the budgeted
cash collections for March?
a) $24,500
b) $26,600
c) $28,000
d) $32,900

4) A company anticipates that 10,000 units of product z will be sold during January. Each
unit of z requires 2 litres of raw material W. Actual stocks as of 1 January and budgeted
inventories as of 31 January are as follows;
1 January 31 January
Product z (units) 14,000 12,000
Raw material W (litres) 20,000 15,000
1 litre of w cost $4
If the company pays for all purchases in the month of acquisition, what is the cash
outlay for January purchases of W?
a) $84,000
b) $80,000
c) $44,000
d) $12,000

SKANS School of 1
Accountancy |
Cash Chapter-
Budget 15
5) Spear makes gross sales for $40,000 per month, of which 10% are for cash, the rest on
credit. Experience shows the following;
Receivables paying:
Within one months 40%
Within two months 50%
Settlement discounts (for payment within one month) 4%
Total expected cash receipts in any bad debts month will be; 10%
a) $35,824
b) $36,400
c) $38,560
d) $40,000

6) Selected figure from a firm’s budget for next month are as follows;
Sales $450,000
Gross profit on sales 30%
Decrease in trade payables over the month $10,000
Increase in cost of inventory held over the month $18,000
What is the budgeted payment to trade payables?
a) $343,000
b) $323,000
c) $307,000
d) $287,000

7) A company has a current balance of $7,000, trade receivables of $15,000 and trade
payables of $40,000. The company can sell goods costing $50,000 for $70,000 next
month. One half of all sales are collected in the month of sale and the remainder in the
following month. All purchases are made on credit and paid during the following
month. Inventory levels will remain constant during the month. General cash expenses
will be $60,000 during the month. The cash balance at the end of the month is;
a) $25,000 overdrawn
b) $26,000 overdrawn
c) $33,000 overdrawn
d) $43,000 overdrawn

8) Jasper has budgeted the following month.

$000
Accounting profit after tax 100
Increase in receivables 35
Increase in inventory 20
Increase in trade payables 20
Depreciation 70
Increase in provisions of Taxation 40
What is the budgeted increase in cash balances for the month?
a) $55,000
b) $125,000
c) $175,000
d) $225,000

9) The following statements have been made about a bank’s right in relation to its
customers;

SKANS School of 2
Accountancy |
Cash Chapter-
Budget 15
i. The bank has the right to be repaid overdrawn balances on demand, except where the overdraft
terms require a period of notice.
ii. The bank can be the customer’s money in any legally or morally acceptable way that it chooses.
iii. A customer’s money must always be available for immediate withdrawal, irrespective of the
terms of the deposit.
Which of the above statements is true?
a) (i) and (ii) only
b) (i), (ii) and (ii)
c) (i) and (iii) only
d) (ii) and (iii) only

10) Which of the following statements about working Capital is correct?

a) Working capital is the difference between a company's total assets and its total liabilities.
b) WorkingCapitalisthedifferencebetweenacompany'stotalassetsanditscurrentliabilities.
c) Workingcapitalisthedifferencebetweenacompany'scurrentassetsanditstotalliabilities.
d) Working capital is the difference between a company's current assets and its current liabilities.

11) Which of the following is not classed as working capital?

a) Overdraft
b) Inventory
c) Accruals
d) Bank loan

12) A business has general overheads of $160,000 in September 20X9 but it is anticipated that these will
increase by 1.75% per month for the next few months. Overheads are paid the month after they are
incurred. What is the cash outflow for overheads in the month of December 20X9?
a) $162,800
b) $165,600
c) $168,548
d) $165,649

13) Which of the following is a way of improving operational cash flows in a business?
a) Taking more credit from suppliers
b) Giving more credit to customers
c) Increasing inventories
d) Taking advantage of early settlement discounts from suppliers

14) Which of the following are functions carried out by a company's treasury department?
i. Working capital management
ii. Preparation of annual financial statements
iii. OD Exchange dealing, including futures and options
a) (i) and (ii) only
b) (ii) and (iii) only
c) (i) and (iii) only
d) (i), (ii) and (iii)

15) Which of the following are ways of funding a forecast cash deficit?
i. Leading and lagging
ii. Borrowing from the bank

SKANS School of 3
Accountancy |
Cash Chapter-
Budget 15
iii. Selling short-term financial investments
a) (i) and (ii) only
b) (i) and (iii) only
c) (ii) and (iii) only
d) (i), (ii) and (iii)

16) Which of the following may be causes of cash flow problems?

i. Losses
ii. Growth
iii. Seasonal business
a) (i) and (ii) only
b) (i) and (iii) only
c) (ii) and (iii) only
d) (i), (ii) and (iii)

17) The revenue for Y Co is as follows:

Year Revenue
$
20X1 26,500
20X2 28,680
20X3 29,530
20X4 27,760
20X5 30,230
Using 20X1 as the base year. What is the index for 20X4?
a) 96
b) 104
c) 108
d) 114

18) Which of the following statements about UK government securities are correct?
i. Most are fixed interest
ii. Most have a face value of £100
iii. The yield is higher than local authority stocks.
a) (i) and (ii) only
b) (i) and (iii) only
c) (ii) and (iii) only
d) (i), (ii) and (iii)

19) Which of the following statements about certificates of deposit is correct?

a) Certificates of deposit are issued by the UK Government.
b) Ownership of certificates of deposit is transfer by physical delivery from buyer to seller.
c) Certificates of deposit are not negotiable
d) The deposit is invested in stock and bonds.

20) Which of the following uses of an overdraft is a bank most likely to approve of?
a) To purchase new machinery
b) To cover a temporary cash shortfall
c) To invest in a new Company
d) To expand overseas

SKANS School of 4
Accountancy |
Cash Chapter-
Budget 15
21) Which of the following describes exceptional cash transaction?
a) Relate to the long-term functioning of the business
b) Capitalised in the accounts
c) Occur at regular Intervals
d) Unusual costs such as the closure of part of a business

22) When cash and profit relate to the same period, which of the following transactions
will affect the amount of cash in a business in the same way as it affects profit reported
in the statement of profit or loss (income statement)?
a) The sale of a fleet of company vehicles
b) The monthly rent accruals
c) The payments of wages at the end of each month
d) The purchase of new computers.

23) Which of the following are important procedures to follow when handling cash
payments?
i. Restricting access to cash and cheques
ii. Ensuring prompt banking of cash
iii. Ensuring all cash bank is reconciled
iv. Completing appropriate supporting documentation
a) (i) only
b) (ii) and (iv)
c) (i) and (iv) only
d) All of them

24) Statement 1: When economic conditions are unfavourable, businesses are likely to try to preserve
cash balances.
Statement2: When economic conditions are unfavourable, businesses are likely to be reluctant to
borrow funds.
Which of the above statements are correct?
a) Statement 1 is correct; Statement 2 is false
b) Both statements are correct
c) Both statements are false
d) Statement 1 is false; Statement 2 is correct

25) Cash forecasts are likely to show which of the following?

i. How much cash is required?
ii. Profit
iii. When cash is required
iv. The sources of funding available
a) (i) only
b) (ii) and (iii)
c) (i) and (iii)
d) (iii) and (iv)

26) The trend figures for sales in $ for a business for the four quarters of last year and the
Seasonal variation are estimated as:

SKANS School of 5
Accountancy |
Cash Chapter-
Budget 15
$ Trend sales Seasonal variation
Quarter 1 160,000 +12,820
Quarter 2 164,500 +14,805
Quarter 3 169,000 -5,070
Quarter 4 173,500 -22,555

Assuming the trend continues, what are the forecasted sales for Quarter 1 next year?
a) $190,820
b) $186,320
c) $150,945
d) $172,820

27) Budgeted revenues for a business are shown below.

Month $
January 60,000
February 70,000
March 84,000

Payment is expected to be received as follows:

55% received in the month of sale
28% received in the month following that of sale
17% will not be received at all
What are the budgeted cash receipts in February?
a) $55,300
b) $38,500
c) $50,400
d) $71,500

28) Which of the following is the least likely to be carried out by the treasury department?
a) Dealing in foreign exchange
b) Involvement in business acquisitions and sales
c) Preparing the corporate budget and business plan
d) Negotiating arrangements with bank.

29) In the additive model, where A= Actual figure, T = Trend figure and S = Seasonal
variation, how seasonal variation is calculated?
a) S = A – T
b) S = A x T
c) S = A / T
d) S = A + T

30) Which of the following procedures help to ensure that cash and cheques are not
misappropriated?
i. Sending regular statements to customers showing transactions and cash received during period
ii. Checking to ensure that the bank statement is in agreement with the paying-in records
iii. Ensuring that two persons are always present when the mail is open.
iv. Conducting spot checks on the cash balance maintained at the company's premises
a) (i), (iii) and (iv)
b) (iii) and (iv) only

SKANS School of 6
Accountancy |
Cash Chapter-
Budget 15
c) (i) and (ii)
d) (ii) and (iii)

31) Which of the following should cheque signatories are responsible for?
a) Approving cheque requisitions
b) Recording payments
c) Preparing payments
d) None of the above

32) A company is preparing the budget for a product and the following data has been
provided.
Month 1 MontH 2 Month 3 Month 4
Planned sales (units) 2,000 2,000 2,500 2.800

No inventory of material is held. Closing inventory (finished good) in each month must be 40% of the
next month’s sales. Suppliers are paid in the month following the purchase. The standard cost of
material is $4.00 per unit. What is the budgeted payment to materials suppliers in month
3?
a) $8,800,
b) $10,000
c) $10,200
d) $9,400

33) A company's projected revenue for 20X6 is $342,000. It is forecast that 20% of revenue will occur in
January and the rest will be equally spread among the remaining eleven months. All sales are on
credit. Payment is expected to be received as follows:
50% received in the month of sale
45% received in the following month
5% not received and written off as bad debts after two months
What are the budgeted cash collections for March?
a) $24,873
b) $23,629
c) $22,386
d) $27,075

34) One of the main criteria in considering the investment of surplus cash is risk. Which
of the following investments is generally considered to carry the greatest risk?
a) Preference shares
b) Convertible loan notes
c) Government securities
d) Secured loan

SKANS School of 7
Accountancy |