Cash Budget Preparation and Accounting Equation Explanation

Task 1

For each transaction, decide whether it should be included in the cash budget for the business; prepare a cash budget for the three months ending 31 March, 2022.

1. Anton invested £10,000 cash in the business on 1 January, 2022.
2. Anton plans to make drawings of £800 per month for each personal expenditure.
3. Anton purchases a computer for his personal use at a cost of £499 in January.
4. Anton also purchased a computer in January for business purposes at a cost of £720 cash.
5. He plans to buy a motor vehicle for £3,200 cash on 1 March, for business purposes.
6. Sales estimates are as following:

January = £4,200

February = £ 3,200

March = £2,950

7. Sales are made 30% cash and 70% on one months’ credit.
8. Purchases will be made for cash as follows:

January = £ 2,800

February = £1,500

March = £1750

9. Other expenses are estimated as follows:

• Electricity £285 payable at the end of the quarter.
• Telephone costs of £120 per month, payable at the end of each month by cash.
• Fuel cost for motor vehicle estimated to be £65 per month, payable in the same month.

Task 2

What is Accounting Equation and explain why the accounting equation will always work? Also, provide an example with your explanation.

What benefits might a company gain from having its shares listed on a stock exchange?

Who do you think might be considered to be stakeholders in a large listed company like Marks and Spenser?

Is the profit that a business makes a reliable indicator of its cash balances? What are the differences between Profit and Cash?