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Understanding management accounting and financial management - Assignment Example
Author : kaialeuschke
Finance & Accounting
Pages 4 (1004 words)
In any organization where budget is used as a means of profit planning many alternative plans have to be considered and the most profitable one will be adopted, because where the plan chosen in great expectations, then the best use has been made of the available resources.
Understanding management accounting and financial management
The cash budget presents the activity of the company over the first 12 months of its operations and assesses how much cash it can generate while working in the due course of business. As it is apparent from the above computation that in the first month the company has negative cash flow as it is the policy of the company to sale goods on credit and majority of the creditor settles claims after the month of the sales. After the first few months, the cash flow of the company has changed from negative to positive and thus it continues to grow for the next months till December. In order to further increase it cash flows, the company should curtail its variable cost of production and should ensure that creditors are approached in order to award the company with discounts. Another method for ensuring that the company has healthy cash flow is that the company should ask the creditors for increasing the settlement period. By doing so, the company would have ample amount of cash available and thus it can invest it in the working capital. Good working capital is essential for better functionality of the business and the company can assess the working capital requirement by looking at its cash budget. For example, since the cash flow is negative in the first two months, the company needs to manage its working capital prudently in these two months so that they can finance the rest of the operations of the year easily. ...