Sir Sitaram & Lady Shantbai Patkar College of Arts & Science AND V.P. Varde College of Commerce & Economics S.V. Road, Goregaon (West), Mumbai-400062

SIR SITARAM & LADY SHANTBAI PATKAR COLLEGE
OF ARTS & SCIENCE

AND
V.P. VARDE COLLEGE OF COMMERCE & ECONOMICS
S.V. ROAD, GOREGAON (WEST), MUMBAI-400062
B.Com (Banking & Insurance)
NAME PRACHI CHANDRKANT CHAVAN

CLASS SYBBI / B
ROLL NUMBER 446
SUBJECT FINANCIAL MANAGEMENT - 2
TEACHER Dr. B.M. RAI
Q1) EXPLAIN THE CONCEPT OF WORKING CAPITAL
ANSWER :
 Meaning: In an ordinary sense, working capital denotes the amount of funds
needed for meeting day-to-day operations of a concern. This is related to
short-term assets and short-term sources of financing. Hence it deals with
both, assets and liabilities in the sense of managing working capital it is the
excess of current assets over current liabilities. In this article we will discuss
about the various aspects of working capital.
 Concept: The funds invested in current assets are termed as working capital
It is the find that is needed to run the day-to-day operations. It circulates in
the business like the blood circulates in a living body. Generally, working
capital refers to the current assets of a company that are changed from one
form to another in the ordinary course of business, i.e. from cash to
inventory, inventory to work in progress (WIP), WIP to finished goods,
finished goods to receivables and from receivables to cash.
 There are two concepts in respect of working capital: Gross working

capital and Networking capital
a) GROSS WORKING CAPITAL:

The sum total of all current assets of a business concern is termed as gross working
capital. So, Gross working capital = Stock + Debtors + Receivables Cash.
b) NET WORKING CAPITAL:

The difference between current assets and current liabilities of a business concern
is termed as the Net working capital. Hence, Net Working Capital – Stock +
Debtors + Receivables + Cash – Creditors – Payables.
Q2) EXPLAIN THE SOURCES OF WORKING CAPITAL
FINANCE
ANSWER :
MEANING –
 According to period → , medium, long term
 according to ownership → owned, Borrowed capital
 according to source of generation → Internal, External
SHORT TERM
 It is the finance which is available to the 1 year. Therefore such finance is
known as working capital Finance.
 Example. Bank finance (cash credit), overdraft, Purchase on Discounting of
cash And letter Of credit.
MEDIUM TERM
 A Medium Term finance is available more than 1 year and
up to 3 to years. Therefore such period of finance is known
as Medium term finance.
 Example. Public deposit term loan from the financial
institution.
LONG TERM
 Long term service of finance is finance which is available
for 5 and more than 5 years long loan used from and they
are institution of new. Tags term are such of lo-50 years
used for fixed assets capacity modernization and
diversification,
 Example Equity share preference share, debentures lease
finance venture Capital and long term loan from banks
financial institutions.
OWNED CAPITAL
 Such funds are provided by owner of business and there
fore it is known as owned funds.
 Example Equity share capital, preference Share and
retained earnings.
BORROWED CAPITAL
 Borrowed funds are long term funds which business are
received to do business.
 Example debentures, long term loan, etc.
INTERNAL SOURCES
 The internal sources of capital is the one which is generally
internally by the business.
 Example retained profits reduction or controlling of
working capital, sales & assets et capital & seeds, etc.
EXTERNAL SOURCES
 An external sources of finance is the capital generated from
outside the business A part from the internal sources of
funds, all the sources are external sources.
 Example Tem loan , deposits Equity capital, Public
deposits and preference Share, etc.
Q3) DESCRIBE THE CONCEPT OF CASH BUDGET
ANSWER :
 The operating budget is usually prepared in the term of revenue
and expense.
 For financial planning purpose it must be translated into term of
cash inflow and cash outflow.
 This translation results in cash budget. the financial manager uses
the cash budget to make the plan to ensure that the organization
has enough, but not too much, cash on hand during the year ahead.
 The cash budget is probably the most important tool in each cash
management.
 It is a device to help a firm to plan and control the use of the cash.
In the statement showing the Estimated cash in flow over planning
horizon.
 In other words, the net cash the position (surplus or deficiency) of
a firm has it moved from one budgeting sub- period another is
highlighted by cash budget.
 Cash budget is a device to help a firm to plan and control the use
of cash. It is a statement showing the estimated cash inflow over
the planning horizon.
 In other words ,the net cash the position (surplus or deficiency) of
a firm has it moved from one budgeting sub- period to another is
highlighted by cash budget
Q4) DESCRIBE THE ESSENTIALS FEATURES OF CASH
MANAGEMENT.
ANSWER:
 Cash-Cash may either to cash in the form of a currency ,or to other
equivalents such as cheque, drafts, deposit among others.
 Earning power - Among all the asset cash is the most liquid asset idle cash
balance has no earning power unless it is invested somewhere.
 Liquidity management – Liquidity remains the top priority in managing a
cash surplus. Cash management deals with the management of liquid cash
and near cash a said such as marketable securities and time deposit which
can be readily converted to cash without any reduction in its monetary value.
 Honour payment obligation - Cash management helps in honouring the
payment obligation on due dates and thus maintaining the reputation and
creditworthiness of the firm.
 Excess cash – Cash management involves Taking decision for parking date
temporary cash surplus in marketable security.
 Borrowing costs- The company can reduce or minimize its frequent short
term borrowing cost by holding adequate cash balance.
 Cash flow planning and management - Cash management involved
forecasting when ,how, and where cash need marriage determine which
would be the best source for additional cash need, and be prepared to meet
cash need when they arrive. it also involves realization of cash payment at
the earliest.
 Cash flow management - Cash management comprise of a series of activities
aimed at efficiently handling the inflow and outflow of the cash.
 Avoid - Business failure most of the time improper management of cash
result in the business failure. On the contrary proper cash management
award the chances of business failure and it helps a firm to tied with
liquidity crunch.
 Motives - It is crucial organization to manage for four main result that is
transaction, precaution, speculation, and compensatory. The main reason for
holding cash is to ensure the business can exploit any new growth
opportunities as they arise.
Q5) BRIEFLY EXPLAIN THE DIFFERENCE BETWEEN CASH BUDGET
AND CASH FLOW STATEMENT
Answer:
CASH BUDGET CASH FLOW STATEMENT

 A cash budget is futuristic.  A cash flow statement is
historical.
 A cash budget is a device  A cash flow statement is a
which helps to plan and statement of changes in financial
control the use of cash position prepared on the basis of
funds defined as cash or cash
equivalent.
 A cash budget may be  A cash flow statement is prepaid
prepared on daily ,weekly, annually at the end of the
bimonthly (fortnightly) accounting year, even though
,monthly, quarterly, half projected cash flow statement
yearly or an annual basis, but can also be prepared from the
normally it is Prepaid projected account.
monthly.
 Cash budget is not mandatory  Cash flow statement is
in India. mandatory in India.
 There is no statutory format of  A cash flow statement has a
cash budget in India. presented in the annual report as
per AS-3 a statutory format as by
ICAI.
 A cash budget is divided into  A cash flow statement is divided
to parts cash inflow or to 3 main parts ie Operating
received and cash outflow or activities, investing activities
payments. ,and financing activities.
 A cash budget is used as a  Cash flow statement is used for
planning tool for future cash analysing the women of cash and
management. cash equivalents during the past
one accounting year.

Sir Sitaram & Lady Shantbai Patkar College of Arts & Science AND V.P. Varde College of Commerce & Economics S.V. Road, Goregaon (West), Mumbai-400062

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Sir Sitaram & Lady Shantbai Patkar College of Arts & Science AND V.P. Varde College of Commerce & Economics S.V. Road, Goregaon (West), Mumbai-400062

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SIR SITARAM & LADY SHANTBAI PATKAR COLLEGE

OF ARTS & SCIENCE

B.Com (Banking & Insurance)

NAME PRACHI CHANDRKANT CHAVAN

 There are two concepts in respect of working capital: Gross working

a) GROSS WORKING CAPITAL:

b) NET WORKING CAPITAL:

CASH BUDGET CASH FLOW STATEMENT

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