Financial Accounting And Human Resource Assessment Answer

Answer:

Introduction

A budget is defined as a long term plan which helps the business to estimate the level of expenses and the level of profit that the Business will earn in the future years. The organizations generally formulate different monetary plans and policies and make the expenses and the profits accordingly to facilitate a new budget. The plan in the budget helps the company to make sales and demand forecast. According to Samkin (2010) the importance of budget is as follows:

  • To help the management perform, review and control
  • To ensure that the business is moving according to plan by comparing the actual results with the budgeted results
  • To take appropriate actions when disparity is noticed between the actual plan and the budgeted expenses

The report here deals with the preparing of the cash budget of Global supply chain of Kawaski. The report shows the profit and loss statement as well as the cash budget statement for year Y+0 and the cash budget statement for the year Y+1.

1. Cash budget for 12 month period of Year 0reflecting the effects of new policy

Cash Budget

Year + 0

                     
                         
 

Jan

Feb

Mar

April

May

June

July

August

September

October

November

December

Trade receivables

65

52

55

59

65

55

53

57

59

62

65

68

Trade payables

-35

-29

-31

0

-34

-36

-31

-29

-33

-34

-35

-36

Salaries


-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

Electricity

-2

-3

-4

0

0

-6

0

0

-5

0

0

-15

Overheads

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

Total

-50

-45

-48

-13

-47

-55

-44

-42

-51

-47

-48

-64

Cash Surplus

15

7

7

46

18

0

9

15

8

15

17

4

Opening balance

50

65

72

79

125

143

143

152

167

175

190

207

Closing balance

65

72

79

125

143

143

152

167

175

190

207

211


The cash budget for Y+0 shows the trade receivables same as the given income statement. Before January trade receivable of 65 was incurred and hence the same has been included at the beginning of Y+0 Budget sheet (Modell, 2010).  The same has been done in case of Trade payables. April is shown to be zero because from April the new policy of 60 days has been implemented. The electricity costs from April are made on quarterly basis and also reduced by 1 every month to cut the expenses as well as energy efficiency.

2.1 Forecasted P/L for year Y+1

Budget Profit and loss for year Y+1

                   
                         
                         
 

Jan

Feb

Mar

Aprl

May

June

July

August

September

October

November

December

Sales revenue

55

58

62

68

58

56

60

62

65

68

71

75

Cost of sales

-29

-31

-34

-36

-31

-29

-33

-34

-35

-36

-37

-39

Salaries and wages

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

Electricity

-3

-4

-5

-5

-2

-2

-2

-3

-3

-5

-6

-7

Other overheads

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

Total expenses

-45

-48

-52

-54

-46

-44

-48

-50

-51

-54

-56

-59

Profit

10

10

10

14

12

12

12

12

14

14

15

16


2.2 Cash budget of Y+1 year

Cash budget

Yr 1

                     
                         
 

Jan

Feb

Mar

Arpl

May

 June

July

August

Sept

Oct

Nov

Dec

Trade Receivables

71

55

58

62

68

58

56

60

62

65

68

71

Trade payables

-35

-36

-29

-31

-34

-36

-31

-29

-33

-34

-35

-36

Salaries

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

Electricity

0

0

-9

0

0

-6

0

0

-5

0

0

-15

Overheads

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

-3

Total expenses

-48

-49

-51

-44

-47

-55

-44

-42

-51

-47

-48

-64

Cash surplus

23

6

7

18

21

3

12

18

11

18

20

7

Opening balance

211

234

240

247

265

286

289

301

319

330

348

368

Closing balance

234

240

247

265

286

289

301

319

330

348

368

375


The year Y+1 budget have been prepared keeping in mind the changes in the previous budget. The opening balance has been derived from the closing balance of the Y+1 budget. This has helped the management to compare both the budgets so as to get a fair knowledge about the effectiveness of the policies (Horngren, 2013).

2.3 Techniques of working capital management

Weetman (2010) opined that a direct relation between the working capital management and the budget affects the cash position of the business. Hence if the policies are made to control the budget then the policies will have a direct effect on the working capital structure of the company. The main components of a budget are Trade receivables and the trade payables. Horngren (2013) suggested that working capital cycle is in a simpler sense known as the Trading cycle. Hence the change in the days of trade receivable and trades payable makes changes in the budget as well as the working capital cycle of the company.

For this reason to keep parity between the two the company can use two different policies namely the subjective approach and the objective approach. The other approaches that will help the company to prepare the budget are the determination of the Economic order quantity which will help the company to decide how much of a particular item should be ordered when the stocks reach replenishment level.

Moreover the control of the trade payables is also a major issue of managing the balance. The trade payables arise when the business buy goods on credit (Epstein and Lee, 2010). To make timely payment of the trade payables the company must have a positive trade receivable policy. Here the trade receivable policy is 30 days and the trade payable policy is 90 days. This is giving the business sufficient time to collect money from the debtors to be able to make payment to the creditors. However Atrill and McLaney (2013) opined that if the trade payable cycle is less than the trade receivable cycle then the business would have to pay cash from store and this will in turn reduce the liquidity of the business.

3. Effects of disposal of equipment on business worth

The 5 major T accounts that can be used for the calculation of the effect of fixed asst disposal as well as the effect of depreciation are namely fixed assets account, cash account, accumulated depreciation account, disposal of asset account and Profit and loss account (Blocher, 2013).

Step 1: Debit Fixed asset a/c by 250

Step 2: Depriciation of (250-50) / 5= 40 is credited to accumulated depreciation a/c each year and debited to P/L account.

Step 3: After three years the accumulated depreciation is 120

Step 4: The sale price is fixed at 110. At this point the accumulated depreciation is 120 making a net book value of (250-120) = 130

Step 5: The sale results is loss of 20.

Step 6: closing of the accounts

The fixed asset account will be closed by creating a disposal of fixed asset account and debiting the account by acquisition costs that is 250. The disposal account will further be credited by 110 of the sale price.

The accumulated depreciation account will be closed by debiting 120 and crediting the disposal of fixed asset account.

Step 7: Calculation of the net worth

Sale + accumulated depreciation- acquisition cost

= (110+ 120) – 250

= (20)

The amount is added to the loss of the year and will go to the shareholder’s funds to balance the net worth in the balance sheet.

P/L account for Y-2

                       
                         
 

Jan

Feb

Mar

Aprl

May

June

July

August

September

October

Novemeber

December

Sales revenue

55

58

62

68

58

56

60

62

65

68

71

75

Cost of sales

-29

-31

-34

-36

-31

-29

-33

-34

-35

-36

-37

-39

Salaries and wages

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

-10

Electricity

-3

-4

-5

-5

-2

-2

-2

-3

-3

-5

-6

-7

Leasing fee

-4

-4

-4

-4

-4

-4

-4

-4

-4

-4

-4

-4

Other overheads

-2

-2

-2

-2

-2

-2

-2

-2

-2

-2

-2

-2

Total expenses

-48

-51

-55

-57

-49

-47

-51

-53

-42

-57

-59

-62

Profit

7

7

7

11

9

9

9

9

23

11

12

13

 

4. Report analysis

The Report shows the cash budget preparation of both Y+0 and Y+1 years. Since the changes in the polices have been made in order to prepare a new budget for Y+1 hence the report tries to analyze the changes in the cash flow registered due to changes made in the budget as the policies. The trade cycle has been changed which shows a positive effect on the cash balance of the Y+1 year. The trade receivable time has been decreased to 30 days which means that the company will be able to realize the cash faster. On the contrary, the trade receivables policy of the company has been increased to 90 days which means that the company will have ample amount of time to utilize the cash received for the payment of the creditors

Finally the policy of reducing the electricity charges by 1 each month is a noble decision on the part of the management because it not only provides sustainable side to the company but also reduces the expenses thereby increasing the cash surplus.

Another decision of making the quarterly payment of the electricity expenses showed a rise of the cash surplus in the quarters where the company did not need to make any payments. However it can be seen that a quarterly payment may increase the burden of the company to make overall expense payment in one month.

Reference list

Books

Atrill & McLaney, 8th edition. 2013.Accounting & finance for Non-Specialists, pp.307-342.

Blocher, E. (2013). Cost management. New York, NY: McGraw-Hill/Irwin.

Epstein, M. and Lee, J. (2010). Advances in management accounting. Bingley: Emerald.

Horngren, C. (2013). Introduction to Management Accounting. Harlow: Pearson/Education.

Weetman, P. (2010) Management Accounting, Chapters 1 & 2.

Journals

Modell, S. (2010). Bridging the paradigm divide in management accounting research: The role of mixed methods approaches. Management Accounting Research, 21(2), pp.124-129.

Samkin, G. (2010). Qualitative research in accounting & management. [Bingley, UK]: Emerald.

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