Unit 5: Accounting Principle

Assignment Brief 1
Student Name/ID
Number

Unit Number and Unit 5: Accounting Principles

Title

Academic Year 2023/2024

Unit Tutor Doan Nguyen Trang Phuong & Ha Phuoc Vu

Assignment Title Accounting in Context and Budgetary Control

Issue Date 01/11/2023

Submission Date 22/11/2023

Submission Format
The submission is in the form of a portfolio of two assignments that include:
1. A blog that should make use of headings, sub-sections, columns, and appropriate
business-related images and illustrations.
2. A memorandum with an accompanying Excel spreadsheet (raw data will be supplied). You
will insert sections of your spreadsheet into the memorandum.
All work must be supported with research and referenced correctly using the Harvard referencing
system (or alternative referencing system). You will need to provide a bibliography using the
Harvard referencing system (or an alternative referencing system). Inaccurate use of referencing
may lead to issues of plagiarism if not applied correctly. The recommended word limit for either
the case study or the memorandum is 1,000–1,500 words, although you will not be penalized for
going under or exceeding the total word limit.

Unit Learning Outcomes

LO1 Examine the context and purpose of accounting.
LO4 Prepare budgets for planning, control, and decision-making using spreadsheets.

Transferable skills and competencies developed

• Reasoning and analytical skills
• Written communication using a range of media
• Manipulation and interpretation of data using spreadsheets
• Effective communication of relevant information across the organization and to appropriate
stakeholders
• Creation and interpretation of information, showing how that information can be used most
effectively to add value to an organization.
Vocational scenario
Organization
KPMG is a multinational professional service company that undertakes extensive business
consultancy work for its client base. Headquartered in Amstelveen, Netherlands, although
incorporated in London, England, KPMG is a network of firms in 145 countries with over 265,000
employees. An analysis of the KPMG FPI country data indicates that, over the year ending the
third quarter of 2023, the largest gains in KPMG FPI were experienced by companies
headquartered in Canada (56.10 percent), Australia (15.58 percent), Singapore (11.59 percent)
and Malaysia (9.18 percent). KPMG also has a policy of taking on smaller niche clients, where they
feel there is potential for fast growth.
Role
You have recently joined the firm as a Graduate Trainee attached to their UK SME (Small
and Medium Enterprises) Unit, offering accountancy and financial services to businesses that
typically have a turnover ranging from £0.5 m to £15 m. You have been asked to undertake some
activities as part of your ongoing training.
Assignment activity and guidance
Your supervisor, one of the firm’s Key Account Managers, has asked you to prepare a blog that
will be used to market and promote its accounting services to new and existing clients. The
working title you have been given for the blog is ‘The Role of Accounting in an Organisation’. The
blog must be presented as an online blog in an engaging and practical way, covering relevant
academic theory, and making use of, for example, headings, images, and illustrations. Your blog
should include the following, but is not limited to:
• definition of accounting and its purpose in complex operating environments.
• the main branches of accounting, career opportunities, and job skillsets and competencies.
• a critical evaluation of the role of accounting in informing decision-making to meet
organizational, stakeholder, and societal needs within complex operating
environments.
• accounting systems and the role of technology in modern-day accounting.
• issues of ethics, regulation, and compliance and the extent to which they are constraints or
threats to the organization.

Having completed the first activity, you have been asked to work with a hospitality and catering
start-up business that your firm has just taken on as a client. The business particularly needs
support and guidance with budgeting and how it can be used to inform efficient resource
allocation and support effective control and decision-making. The founder of the business is
investing £100,000 of their own capital and has also secured a business loan of £50,000.
You have been asked to prepare a memorandum that includes the following.
• Production of a 12-month cash budget that makes use of variance analysis to show the impact
of the different individual scenarios below:
1. discounting prices by 20 percent, which in turn increases sales volume per month by 10
percent
2. increasing the marketing budget by 10 percent per month, which in turn generates an
additional 20 percent in sales revenue
3. offering suppliers a one-month trade credit
4. reducing rental/property-related costs by 15 percent per month.
• An evaluation of the role that budgets play in the effective planning and control of resources in
an organization such as your client’s. This will include both benefits and any limitations of using
budgets and the extent to which they can help identify problems and corrective actions.
• An outline of a range of budgetary control solutions, with justification, to support organization
decision-making and ensure efficient and effective deployment of resources.
Recommended Resources
Please note that the resources listed are examples for you to use as a
starting point in your research – the list is not definitive.
Weblinks
KPMG website. Available at: https://kpmg.com/vn/en/home.html
Accounting Coach courses. Available at:
https://www.accountingcoach.com/accounting-basics/explanation
The Association of Chartered Certified Accountants ACCA). Available at: https://www.
accaglobal.com/gb/en.html
Chartered Institute of Management Accountants. Available at: https://www.cimaglobal.
com/
Indeed Career Guide to Memo Writing. Available at:
https://www.indeed.com/career-advice/career-development/memo-writing-guide
HubSpot. How to write a memo: Templates & examples. Available at: https://blog.hubspot.
com/marketing/how-write-memo

HN Global
HN Global (2021) Reading Lists. Available at: https://hnglobal.highernationals.com/learningzone/
reading-lists
HN Global (2021) Student Resource Library. Available at: https://hnglobal.highernationals.
com/subjects/resource-libraries
HN Global (2021) Textbooks. Available at: https://hnglobal.highernationals.com/textbooks

Textbooks
Dyson, J R - Accounting for non-accounting students, 8th Edition (Pearson Education, 2010),
Chapter 1: The accounting world, pages 2-21.
Atrill, P. and McLaney, E. (2018) Accounting and Finance for Non-Specialists. 11th Ed. Harlow:
Pearson
Weetman, P. (2019). Financial and Management Accounting: An Introduction. Harlow: Pearson
Learning Outcomes and Assessment Criteria

Pass Merit Distinction

LO1 Examine the context and purpose of accounting

P1 Examine the purpose M1 Evaluate the context D1 Critically evaluate

of the accounting function and purpose of the the role of accounting in
within an organization. accounting function in informing decision making
P2 Assess the accounting meeting organizational, to meet organizational,
function within the stakeholder and societal needs stakeholder and societal
organization in the context and expectations. needs within complex operating
of regulatory and ethical environments.
constraints.

Pass Merit Distinction

LO4 Prepare budgets for planning, control, and decision

making using spreadsheets

P6 Prepare a cash budget M4 Identify corrective D3 Justify budgetary control

from given data for an actions to problems revealed solutions and their impact on
organization using a by budgetary planning and organizational decision-making to
spreadsheet. control for effective ensure efficient and effective
P7 Discuss the benefits and organizational decision- deployment of resources.
limitations of budgets and making.
 budgetary planning and
control for an organization.

Exclude matches < 1%

Pearson Education Higher Education Qualifications

 Table of Contents
PART 1: BLOG..............................................................................................................3
Introduction.................................................................................................................3
An overview of accounting......................................................................................3
An overview of KPMG............................................................................................3
1. The Purpose and Scopes of Accounting in complex operating environment.......4
1.1 Purpose of accounting functions....................................................................4
1.2 Scopes of accounting functions.....................................................................5
2. Branches of accounting, job skillsets and competencies.........................................6
2.1. Branches of accounting.....................................................................................6
2.2 Job skillset and competencies of accounting...................................................10
3. The accounting systems and technology’s roles in modern accounting...............11
3.1 The accounting systems...................................................................................11
3.2 Technology’s influences in modern accounting..............................................12
4. The organization's accounting role in the context of regulatory and ethical
constraints..................................................................................................................13
4.1 The regulatory system in KPMG.....................................................................13
4.2 The ethical constraint on accounting...............................................................15
5. A critical evaluation of the role of accounting in informing decision-making to
meet organizational...................................................................................................16
Conclusion.................................................................................................................18
PART 2: MEMORANDUM.........................................................................................19
1. The significance of budgets in organizational planning, management, and
decision-making........................................................................................................19
1.1 The benefits of budgeting................................................................................19
1.2 The limitations of budgeting............................................................................20
2. Create a cash budget for a company using the information provided................21
Expected Cash Collections....................................................................................22
Merchandise purchases budget..............................................................................23
Effects of Scenarios...............................................................................................28
References.................................................................................................................39
Figure 1. KPMG company logo.....................................................................................3
Figure 2. Branches of accounting...................................................................................6
Figure 3. Skills of accountants.....................................................................................10

Table 1. GAAP and IFRS comparison.........................................................................14

Table 2. the company’s general ledger showed the following account balances.........21
Table 3. Actual sales for December and budgeted sales for the following months.....21
Table 4. Expected Cash Collections from Jan to Jun...................................................22
Table 5. Expected Cash Collections from Jul to Dec...................................................23
Table 6. Merchandise purchases budget from Jan to Jun.............................................23
Table 7.Merchandise purchases budget from Jun to Dec.............................................23
Table 8. Cash disbursement for merchandise purchases from Jan to Jun....................24
Table 9. Cash disbursement for merchandise purchases from Jul to Dec....................25
Table 10. Cash disbursement for selling and administrative expenses from Jan to Jun
................................................................................................................................. 26
Table 11. Cash disbursement for selling and administrative expenses from Jul to Dec
................................................................................................................................. 26
Table 12. Cash budget from Jan to Jun........................................................................27
Table 13. Cash budget from Jun to Dec.......................................................................28
Table 14. Expected Cash Collections from Jan to Jun (Scenario 1).............................29
Table 15. Expected Cash Collections from Jul to Dec (Scenario 1)............................29
Table 16. . Cash budget from Jan to Jun (Scenario 1)..................................................29
Table 17. Cash budget from Jul to Dec (Scenario 1)....................................................30
Table 18. Expected Cash Collections from Jan to Jun (Scenario 2).............................31
Table 19. . Expected Cash Collections from Jul to Dec (Scenario 2)..........................31
Table 20. Cash disbursement for selling and administrative expenses from Jan to Jun
(Scenario 2)...................................................................................................................31
Table 21. Cash disbursement for selling and administrative expenses from Jul to Dec
(Scenario 2)...................................................................................................................32
Table 22. Cash budget from Jan to Jun (Scenario 2)....................................................32
Table 23. Cash budget from Jul to Dec (Scenario 2)....................................................33
Table 24. Cash disbursement for merchandise purchases from Jan to Jun (Scenario 3)
................................................................................................................................. 34
Table 25. Cash disbursement for merchandise purchases from Jul to Dec (Scenario 3)
................................................................................................................................. 34
Table 26. Cash budget from Jan to Jun (Scenario 3)....................................................35
Table 27. Cash budget from Jul to Dec (Scenario 3)....................................................35
Table 28. . Cash disbursement for selling and administrative expenses from Jan to Jun
(Scenario 4)...................................................................................................................36
Table 29. Cash disbursement for selling and administrative expenses from Jul to Dec
(Scenario 4)...................................................................................................................37
Table 30. Cash budget from Jan to Jun (Scenario 4)....................................................37
Table 31. Cash budget from Jul to Dec (Scenario 4)....................................................38
PART 1: BLOG
Introduction
An overview of accounting
Accounting plays a crucial role in providing businesses with essential financial
information. It serves as a framework for measuring, recording, and analyzing data,
which forms the basis for assessing a business's performance. Recognizing the
significance of accounting within a company, this blog aims to evaluate how the
accounting function informs decision-making and fulfills the needs and expectations
of various stakeholders, including organizations, individuals, and society.
Furthermore, it explores the professional skills and competencies required in
accounting. In addition to that, this blog delves into the creation of cash budgets using
raw data. It examines the advantages and disadvantages of budgeting and budget
planning, while also uncovering solutions to challenges that arise during the planning
and control of budgets. By facilitating successful organizational decision-making,
these solutions ensure the efficient and effective utilization of resources. The blog also
emphasizes the importance of establishing sound budgetary control systems and
explores their influence on organizational decision-making.

An overview of KPMG

Figure 1. KPMG company logo.

KPMG is a globally recognized professional service company that offers extensive
business consultancy services to its diverse client base. While its headquarters are in
Amstelveen, Netherlands, the company is officially incorporated in London, England.
With a presence in 145 countries and a workforce of over 265,000 employees, KPMG
operates as a vast network of firms. In 2023, companies headquartered in Canada
experienced the highest gains, with an impressive increase of 56.10 percent. Australia
followed suit with a growth rate of 15.58 percent, while Singapore and Malaysia
recorded gains of 11.59 percent and 9.18 percent, respectively. This data showcases
the success of KPMG's clients in these countries.
Moreover, KPMG demonstrates a strategic approach by actively engaging with
smaller niche clients that exhibit potential for rapid expansion. By identifying such
opportunities, the company aims to foster growth and leverage its expertise to support
these clients effectively.

1. The Purpose and Scopes of Accounting in complex operating environment

1.1 Purpose of accounting functions
The primary objective of accounting is to gather and present financial data regarding a
company's performance, financial position, and cash flows. This information is crucial
for making informed decisions about the firm's operations, investments, and financing.
Accounting transactions are recorded in accounting records, which can be generated
through regular business activities like customer invoicing and supplier invoices, as
well as specialized transactions called journal entries.

By maintaining accurate accounting records, companies can effectively monitor the

status of their product manufacturing and overall business operations. This enables
managers to exercise better control, respond promptly to challenges, and ensure stable
internal oversight. As a result, the managers at KPMG Company can utilize financial
statements to make well-informed decisions regarding their strategies, ensuring that
they align with the company's financial position and goals.
1.2 Scopes of accounting functions
Accounting encompasses a broad range of applications due to the dynamic nature of
the economy and evolving societal needs. It serves various entities such as business
organizations, government organizations, and individuals, each with distinct purposes.

 For business organizations, the primary objective is typically to generate

profits. Accounting plays a crucial role in assessing the company's operational
performance and financial position by systematically recording and
documenting financial transactions in the books of accounts.
 Government organizations utilize accounting systems for multiple purposes,
including the calculation of income and expenses, as well as ensuring efficient
administrative operations. Moreover, accounting data is essential for
interpreting and evaluating information to facilitate national planning, budget
preparation, assessment of national development or regression, and other
related tasks.
 On an individual level, people engage in personal accounting practices to
gather and analyze financial data, enabling them to make informed financial
decisions relevant to their personal circumstances.
2. Branches of accounting, job skillsets and competencies.
2.1. Branches of accounting

Figure 2. Branches of accounting

2.1.1 Complex environment

The current business environment, as described by Atrill and McLaney (2017), is
characterized by intense competition and unpredictability. This can be attributed to the
expansion of the global economy, where national borders hold less significance, and
customers are becoming more sophisticated. In this seemingly new world, traditional
methods of measuring performance and cost are no longer adequate for establishing
and managing organizations. To address this challenge, it is essential to develop and
consistently assess cost and performance metrics. This will help minimize the subtle
discrepancies between strategic objectives and operational plans, enabling companies
to stay relevant and deliver value.
2.1.2 Financial accounting
Financial accounting involves the systematic recording of financial transactions and
the subsequent analysis, compilation, and reporting of the results. It is a unique branch
of accounting that evaluates the financial status of an entity at the end of the
accounting period and calculates the profits or losses incurred over a specified period,
usually a year (Jha, 2014).Financial accountants are responsible for various tasks,
including the preparation of daily accounts, distribution of accounting information to
other departments, and managing cash control and cashier duties. This role
necessitates numerical proficiency, a strong understanding of accounting ethics, and
the ability to collaborate with other roles within the organization.

A crucial component of financial accounting is bookkeeping, which can be considered

the foundation of the entire accounting discipline. Bookkeeping involves the
mechanical process of collecting essential financial data, which is then recorded in
designated account books and retrieved in the form of a trial balance. The trial balance
facilitates the preparation of financial statements (Atril & McLaney, 1995).

2.1.3 Management accounting

Managerial accounting involves the recognition, measurement, analysis,
interpretation, and presentation of financial information to assist managers in making
informed business decisions within an organization. Its primary objective is to support
managers in effectively managing the entity's resources and making future-oriented
decisions. In addition to numerical proficiency, managerial accountants are also
expected to possess problem-solving skills, which play a pivotal role in the decision-
making process.

Cost accounting, a significant sub-branch of managerial accounting, focuses on

recording monetary transactions and categorizing them in financial records to determine
the cost associated with a specific object or activity. The implementation of
management accounting practices within an entity is optional and depends on the
specific needs and requirements of the managers.
2.1.4 Taxation
This particular aspect of the accounting function pertains to tax-related tasks, which
involve calculating the tax liability for both business entities and individuals. It entails
collaborating with tax authorities to assess and fulfill the necessary tax obligations. In
the case of independent tax accounting services, a tax accountant needs to possess
strong customer service skills in addition to the standard accounting skills required for
the role.

2.1.5 Auditing
The establishment of the audit function arose as a result of society's demand for
individuals or organizations to obtain information or assurance about the actions or
performance of others, in which they have a valid and acknowledged interest (Flint,
1988). Auditors specialize in evaluating and examining the credibility and reliability
of financial accounts. Their primary focus is to assess the trustworthiness of these
accounts.
accoun
Auditors can be categorized into two types: internal and external. Both types of
auditors are expected to possess qualities such as integrity, excellent customer service
skills, proficiency in numerical analysis, and problem-solving abilities.

2.1.6 Financial management

Financial management is a crucial aspect of overall management (Paramasivan &
Subramanian, 2005). Kuchal, S. C. emphasizes in their statement that financial
management revolves around the acquisition of finances and their efficient utilization
within a firm. This field involves setting financial goals and developing corresponding
strategies for the organization, securing the necessary funds to execute those plans,
and safeguarding the entity's financial resources.
Professionals working in this field are expected to possess not only numerical skills
and problem-solving abilities but also strong negotiation skills. These negotiation
skills are essential for effectively managing financial transactions and interactions
with stakeholders.
2.1.7 Bankruptcy and liquidation
Bankruptcy, liquidation, insolvency, or forensic accounting involves the examination
of an entity's financial records to investigate any illicit financial activities. The process
encompasses activities such as analyzing and auditing fraudulent practices within
accounting operations. The objective is to comprehend the causes of such frauds,
address the financial challenges faced by the entity, and prevent similar fraudulent
incidents from occurring in the future.
Professionals working in this field are required to possess strong numerical skills,
problem-solving abilities, and customer service skills. These skills enable them to
effectively navigate complex financial situations, identify fraudulent activities, and
provide appropriate solutions while ensuring the satisfaction of the relevant
stakeholders.
2.2 Job skillset and competencies of accounting

Figure 3. Skills of accountants

When it comes to accounting, it is important to recognize the significance of both

technical skills and soft skills in the workplace. While technical skills are necessary
for performing specific job duties, soft skills play a crucial role in fostering effective
communication, teamwork, and leadership. These fundamental professional skill sets
should be developed alongside a more specialized accounting curriculum. By honing
soft skills, accountants can enhance workplace interactions, collaborate efficiently
with colleagues, and effectively lead teams.

 Communication: Clear and concise communication is essential for conveying

financial information, discussing complex concepts, and interacting with
clients, colleagues, and stakeholders.
  Collaboration: The ability to work effectively with others, share ideas, and
contribute to team goals is critical in accounting, where teamwork often plays a
vital role in achieving objectives.

 Problem-solving: Strong analytical and critical thinking skills enable

accountants to identify and resolve complex financial issues, analyze data, and
make informed decisions.

 Adaptability: The accounting landscape is constantly evolving, and being

adaptable to change is crucial for staying current with industry trends,
regulations, and technological advancements.

 Time management: Effective time management skills help accountants

prioritize tasks, meet deadlines, and balance multiple responsibilities
efficiently.

 Ethical behavior: Upholding high ethical standards and demonstrating integrity

in handling sensitive financial information are essential components of the
accounting profession.

3. The accounting systems and technology’s roles in modern accounting

3.1 The accounting systems
The accounting system refers to a computer-based system that effectively manages
and regulates data and information pertaining to the financial and economic aspects of
businesses (Urquia, 2011). The integration of computers within information systems
brings about notable improvements in the efficiency of tasks such as data collection,
processing, storage, transformation, and dissemination (Moscove et al., 1999).
Moreover, the accounting system provides several advantages, including enhanced
functionality, heightened accuracy, expedited problem-solving, and the generation of
improved external reports (Meiryani et al., 2021; Pham, 2022).
In the fast-paced and evolving technological landscape of today, the accounting
system has emerged as a vital tool for businesses to efficiently manage their financial
operations. The choice of accounting software often depends on the size of the
business and the number of users who will utilize the system. Larger businesses may
prefer comprehensive software packages such as enterprise resource planning systems.
The incorporation of information technology (IT) has brought substantial advantages
to accounting departments (Ghasemi et al., 2011).

3.2 Technology’s influences in modern accounting:

In this era of continuous technological advancement, the accounting field has also
been significantly impacted, and professionals in accounting are gradually
incorporating technology into their work due to its features and functions.

Computers, servers, the Internet, Wi-Fi, and personal digital devices have brought
about permanent changes in the way businesses operate. Software packages have
enhanced traditional operations and manufacturing procedures. The evolution of
information technology has played a crucial role in the progress of accounting.
Accounting software has replaced traditional paper ledgers and accounting books,
offering specialist features and adaptable programs that cater to current corporate
activities (Ghasemi et al., 2011).

The main impact of technology on accounting is the ability of enterprises to track and
record financial transactions, reducing the fundamental time required for accounting
tasks such as preparing and presenting financial statements. It also enables enterprises
to generate reports quickly and facilitates managerial decision-making (Pham, 2022).

KPMG can incorporate various techniques in their accounting and auditing work, such
as:

 Cloud computing: Cloud computing involves the use of a network of

virtualized computers that provide computing resources based on service level
agreements. Cloud accounting reduces time spent on repetitive tasks, enhances
security compared to local storage, and enables the development of new online
strategies (Ruiz-Agundez et al., 2011).
  Blockchain: Blockchain is a distributed digital ledger that records and
exchanges data over a peer-to-peer network. KPMG's clients can utilize
blockchain for purposes like financial reconciliations, real-time assurance of
financial statements, and loyalty points programs. KPMG also focuses on
automating parts of its auditing processes using blockchain technology.

 Artificial Intelligence (AI): AI involves computer systems performing

cognitive tasks similar to human intelligence. AI can assist in problem-solving,
language interpretation, learning, and self-adaptation. By delegating complex
responsibilities to accounting software, AI improves efficiency, reduces errors,
enhances competitiveness, and promotes the transformation of the accounting
industry (Huang, 2016; Zehong & Li, 2018).

Furthermore, KPMG can explore other techniques to improve its accounting

performance, such as the Internet of Things (IoT) and Big Data. These technologies
can provide additional opportunities for data analysis, automation, and decision-
making in accounting processes.

4. The organization's accounting role in the context of regulatory and ethical constraints
4.1 The regulatory system in KPMG
The regulatory framework plays a crucial role in ensuring the fair and truthful
presentation of financial information, meeting the needs of financial statement users.
Two important international standards that KPMG and other companies should adhere
to are International Financial Reporting Standards (IFRS) and Generally Accepted
Accounting Principles (GAAP). These standards serve as guiding principles to help
businesses standardize and present accurate financial statements. Many countries
worldwide adopt and implement professional accounting practices based on these
standards. These practices ensure that financial statements are relevant, transparent,
reliable, and easily understandable.
There are distinct differences between the two standards:

IFRS (International Financial Reporting Standards): IFRS is a set of accounting

standards developed by the International Accounting Standards Board (IASB). It is
widely used in many countries, including those in the European Union and many
emerging economies. IFRS focuses on principles-based accounting, emphasizing the
substance of transactions rather than their legal form. It aims to provide a global
framework for consistent and comparable financial reporting across different
jurisdictions.

GAAP (Generally Accepted Accounting Principles): GAAP refers to the accounting

guidelines and practices established by regulatory bodies and accounting standard-
setting organizations within a particular country, such as the Financial Accounting
Standards Board (FASB) in the United States. GAAP is more rule-based compared to
IFRS and provides specific guidance on how to account for various transactions and
events. GAAP standards may vary between countries, resulting in differences in
accounting treatments and disclosure requirements.

While both IFRS and GAAP aim to achieve reliable and transparent financial reporting,
the specific rules and principles they employ differ. Companies operating in multiple
jurisdictions often face the challenge of reconciling financial statements prepared
under different accounting standards to ensure compliance with local regulations and
meet the needs of various stakeholders.
Table 1. GAAP and IFRS comparison

Issues GAAP IFRS

Definition is governed by rules, thus is standard-based, which
publicly listed US means that although it is
corporations must advised, nobody is
obediently obligated to abide by its
comply with those rules recommendations.
 under the law.
Global Appeal Primarly used in US Is used more than 110
countries.
Released by Financial Accounting International Accounting
Standard Board (FASB) Standard Board (IASB)
Based on Principles Rules

Because its features, KPMG should consider carefully the accounting legal framework
which is suitable for each process such as legistration in each country, accounting
concepts, etc

4.2 The ethical constraint on accounting

Accounting ethics is a vital aspect of business ethics and holds significant implications
for economies and businesses (James, 2008). Bernardi and Bean (2006) support this
notion by stating that the purpose of ethics extends beyond reducing the burden and
expenses associated with government agencies. It encompasses enhancing corporate
trustworthiness and establishing economic stability to foster global prosperity, as there
is a direct correlation between the stability of a nation's economy and its overall
wealth. Consequently, being merely an accountant is insufficient; the accumulation of
professional ethics by management accountants is a prerequisite for genuine success.

In detail, accountants play a crucial role in the success of a firm, which is why various
requirements are placed upon them. Foremost among these requirements is prudence,
which ensures accuracy in accounting tasks and provides a solid foundation for business
transactions. Additionally, accountants' skills in cost control are vital, and their true
value is demonstrated when they are embedded within the core of the organization.
Given their position, accountants are responsible not only for communicating financial
information to shareholders and complying with legal obligations but also for
safeguarding and enhancing the reputation of the enterprise.
5. A critical evaluation of the role of accounting in informing decision-making to meet
organizational.
Accounting serves a critical role in meeting the needs and objectives of a company by
providing essential economic, fiscal, and other data crucial for decision-making. The
decisions made by managers have immediate and long-term consequences for the
business. Therefore, managers rely on accurate and reliable data from the accounting
division to develop plans that support business growth. Communication of information
can take various forms, such as text, graphs, charts, emails, or printed reports
addressed to management. Inaccurate and careless information from accountants can
render management decisions ineffective and potentially lead to the failure of the
corporation.

Furthermore, effective stakeholder engagement necessitates the establishment of an

accounting and reporting system that captures and communicates the social and ethical
aspects of corporate activities (Pruzan, 1998). The firm's accounting and reporting
system plays a vital role in how managers pay attention to and convey value to
stakeholders (Hall et al., 2015). Accounting is integrated into the stakeholder
management process, encompassing both "listening" to stakeholders and "talking" to
stakeholders. Stakeholders of accounting can be categorized as internal and external
users. External users include investors, creditors, trade partners, financial analysts and
advisors, tax authorities, government agencies, and the public. Internal stakeholders
consist of shareholders, managers, and employees.

Accounting has wide-ranging impacts, not only on companies but also on society and
the government. Society holds certain expectations for the accounting field and its
professionals. It is crucial to comprehend both macroeconomic factors influencing the
roles of management accountants and micro-level changes within organizations.
Establishing the connection between these macro- and micro-level elements is
essential for a comprehensive understanding (Rajeevan, 2019). Accounting makes
significant contributions to social development through the characteristics and features
of financial information it provides, such as relevance, faithful representation,
comparability, timeliness, verifiability, and understandability (Atril & McLaney,
1995). Managerial
accounting and financial accounting play a crucial role in ensuring accurate financial
statements and facilitating informed decision-making for individuals, businesses, the
government, and its agencies. The performance of accounting, therefore, influences
the formulation of company policies that contribute to economic and social
development on a broader scale.

In summary, accounting has implications beyond its direct impact on companies. It

affects society and the government, and understanding both macro- and micro-level
dynamics is important. Accounting's contribution to social development lies in the
qualities of financial information it provides, and it plays a key role in facilitating
informed decision-making and accurate financial reporting. The performance of
accounting influences the formulation of policies that contribute to economic and
social development at a larger scale.
Conclusion
As one of the world's largest auditing firms, KPMG understands the importance of
embracing advanced technologies in accounting, such as cloud computing, AI, and
blockchain. By incorporating these tools into their practices, KPMG aims to enhance
operational efficiency and stay at the forefront of the industry. Additionally, KPMG's
employees are not only expected to possess fundamental accounting and auditing
knowledge but also to be proficient in utilizing these advanced techniques. It is crucial
for them to demonstrate the required characteristics and ethics while leveraging
technology to deliver high-quality and trustworthy accounting services.
PART 2: MEMORANDUM
1. The significance of budgets in organizational planning, management, and decision-
making
A budget is a financial plan that forecasts future earnings and expenses. It serves as a
tool for individuals and businesses to assess whether their projected income and costs
will enable them to sustain their operations. Budgeting involves estimating anticipated
income, expenses, savings, and spending for a given period. Typically, a budget is
created for each fiscal year and includes projections of sales and cost values. This
enables individuals and businesses to anticipate how the upcoming accounting period
is likely to conclude. By comparing actual performance to the budgeted plan, it becomes
possible to assess the business's financial performance.

1.1 The benefits of budgeting

Budgeting is an integral component of accounting that holds numerous advantages and
should not be underestimated. One of its primary benefits is its ability to assist
businesses in emergency planning. By incorporating contingency plans into the
budget, companies can proactively prepare for unforeseen circumstances and mitigate
their financial impact.

Furthermore, a well-constructed and well-executed budget can serve as a powerful

tool to attract investors. Investors often seek assurance that a company has its financial
affairs under control, and a robust budget with strong performance can instill confidence
and demonstrate the organization's commitment to sound financial management.

Budgeting also eliminates the need for setting separate sales objectives when the
budget adequately covers the costs associated with maintaining a sales force or
implementing sales procedures. This allows businesses to focus on executing their
operations and strategies without the additional burden of setting specific sales targets.

In addition, creating and following a budget enables individuals and businesses to

achieve their financial objectives. It provides a structured framework for planning and
controlling income, expenses, and savings, facilitating progress towards financial
goals, such as paying off debts, saving for investments, or funding expansion projects.

Moreover, budgeting simplifies the process of tax preparation. By accurately tracking

and categorizing expenses throughout the budgeting period, individuals and
businesses can easily gather the necessary financial information required for tax
filings, minimizing stress and potential errors.

Lastly, budgeting enhances overall financial decision-making. With a clear

understanding of the financial resources available and the anticipated expenses,
individuals and businesses can make informed decisions about resource allocation,
investment opportunities, cost management, and strategic planning.

1.2 The limitations of budgeting

Budgeting relies heavily on assumptions when forecasting costs and income, which
are based on market conditions and trends at the time of budget creation.
However, significant changes in the macro-environment can lead to a substantial
variance between actual and planned expenses. Additionally, the budgeting process
can be time- consuming, requiring additional manpower to ensure accurate
estimations, especially for large organizations with multiple departments.

Furthermore, budgeting can be rigid, leaving little room for adjustments once the
process is complete. The budget becomes the sole focus of top management,
informing every strategy, and changes in market conditions may not prompt
significant adjustments due to budgetary restrictions. This lack of flexibility can limit
responsiveness to changing circumstances.

Moreover, budgeting can have limitations and potential drawbacks. Mistakes in the
scope of manipulation, ineffective allocation of expenses, and conflicts within
organizations can arise. The strict adherence to budgeted amounts may hinder
adaptability and hinder the ability to optimize resource allocation.
2. Create a cash budget for a company using the information provided

RAW DATA

a) As of December 31 (the end of the prior year the company’s general ledger
showed the following account balances):
Table 2. the company’s general ledger showed the following account balances

b) Actual sales for December and budgeted sales for the following months are as
follows:
Table 3. Actual sales for December and budgeted sales for the following months

c) Sales are x% for cash and y% on credit. All payments on credit sales are collected in the month
following sale. The accounts receivable at December 31 are a result of December credit sales.
d) The company’s gross margin is 60% of sales. (In other words, cost of goods sold is 40% of sale
 e) Monthly expenses are budgeted: £35,000 per month including: rental cost: £8,000; marketing
expenses: £4,000; salary: £12,000; depreciation (non-cash expenses) £10,000 and other
expense: £1000.
f) Each month’s ending inventory should equal 20% of the following month’s cost of goods sold.
g) One-half of a month’s inventory purchases is paid for in the month of purchase; the other half
is paid in the following month.
h) During February, the company purchases a new computer for £3,700 cash.
i) During March, the company outsources an advertisement project for £1,580 cash.
j) During {you can choose the month}, the company purchases a TV for £2,000 cash
k) During July, the company purchases an A/C for £1,000 cash
l) During August {you can choose the month}, the company outsouces a company for the
maintenance service for £2,100 cash
m) During {you can choose the month}, the company outsources a company for an
advertisement project for £4,500 cash.
n) Management wants to maintain a minimum cash balance of £16,000. The company has
an agreement with a local bank that allows the company to borrow in increments of £1,000 at
the beginning of each month, you need to assume for the rate and payment of the interest.
Expected Cash Collections
Table 4. Expected Cash Collections from Jan to Jun

Jan Feb Mar Apr May Jun

Sale volume 9,510 9,100 9,050 8,660 8,780 9,250
price £9.50 £9.50 £9.50 £9.50 £9.50 £9.50
Sales £90,345 £86,450 £85,975 £82,270 £83,410 £87,875
Cash sales £72,276 £69,160 £68,780 £65,816 £66,728 £70,300
Credit sales £18,069 £17,290 £17,195 £16,454 £16,682 £17,575
Total cash collection £88,476 £87,229 £86,070 £83,011 £83,182 £86,982
 Table 5. Expected Cash Collections from Jul to Dec

July Aug Sep Oct Nov Dec Jan

Sale volume 9,190 9,280 9,220 9,480 9,580 13,150 9,880
price £9.50 £9.50 £9.50 £9.50 £9.50 £9.50 £9.50
Sales £87,305 £88,160 £87,590 £90,060 £91,010 £124,925 £93,860
Cash sales £69,844 £70,528 £70,072 £72,048 £72,808 £99,940 £75,088
Credit sales £17,461 £17,632 £17,518 £18,012 £18,202 £24,985 £18,772
Total cash
collection £87,419 £87,989 £87,704 £89,566 £90,820 £118,142 £100,073

Sale for cash: 80%

Sale on credit: 20%
Sales = Sale volume x Price
Cash sales = Sales x 80%
Credit sales = Sales x 20%
Total cash collection = Current month’s cash sales + Previous month’s credit sales
Merchandise purchases budget
Table 6. Merchandise purchases budget from Jan to Jun

Jan Feb Mar Apr May Jun

Budgeted cost of goods
sold £36,138 £34,580 £34,390 £32,908 £33,364 £35,150
Add desired ending
inventory £6,916 £6,878 £6,582 £6,673 £7,030 £6,984
Total needs £43,054 £41,458 £40,972 £39,581 £40,394 £42,134
Less beginning inventory £48,800 £12,662 £6,878 £6,582 £6,673 £7,030
Required purchases £0 £28,796 £34,094 £32,999 £33,721 £35,104

Table 7.Merchandise purchases budget from Jun to Dec

Jul Aug Sep Oct Nov Dec Jan

Budgeted cost of goods sold £34,922 £35,264 £35,036 £36,024 £36,404 £49,970 £37,544
Add desired ending inventory £7,053 £7,007 £7,205 £7,281 £9,994 £7,509
Total needs £41,975 £42,271 £42,241 £43,305 £46,398 £57,479 £37,544
Less beginning inventory £6,984 £7,053 £7,007 £7,205 £7,281 £9,994 £7,509
Required purchases £34,990 £35,218 £35,234 £36,100 £39,117 £47,485 £30,035
The company's gross margin is equal to 60% of revenues.
In other words, the cost of the goods supplied is covered by 40% of sales. Each
month's ending inventory should equal 25% of the cost of the commodities sold in the
next month. COGS = Sales x40%
Desired ending inventory = 25% x Following month’s COGS
Beginning inventory = Previous month’s ending inventory
Required purchase = Total needs – Beginning inventory
Note: Budgeted goods totaling £43,504 were required to be purchased by the firm in
January, however as of December 31, the inventory was £48,800, which was more
than what was needed. As a result, the company doesn't need to make any further
purchases.

Table 8. Cash disbursement for merchandise purchases from Jan to Jun

Jan Feb March April May June

December purchases £24,000 - - - - -
January purchases £0 £0 - - - -
February purchases - £14,398 £14,398 - - -
March purchases - - £17,047 £17,047 - -
April purchases - - - £16,500 £16,500 -
May purchases - - - - £16,861 £16,861
June purchases - - - - - £17,552
July purchases - - - - - -
August purchases - - - - - -
September purchases - - - - - -
October purchases - - - - - -
December purchases - - - - - -
Total cash disbursements for
purchases £24,000 £14,398 £31,445 £33,546 £33,360 £34,413
 Table 9. Cash disbursement for merchandise purchases from Jul to Dec

July August Sep Oct Nov Dec

December purchases - - - - - -
January purchases - - - - - -
February purchases - - - - - -
March purchases - - - - - -
April purchases - - - - - -
May purchases - - - - - -
June purchases £17,552 - - - - -
July purchases £17,495 £17,495 - - - -
August purchases - £17,609 £17,609 - - -
September purchases - - £17,617 £17,617 - -
October purchases - - - £18,050 £18,050 -
November purchases - - - - £19,559 £19,559
December purchases - - - - - £23,742
Total cash disbursements for
purchases £35,047 £35,104 £35,226 £35,667 £37,609 £43,301

The month purchases = Required purchase * 50%

Total cash disbursements for purchase = the month of purchase + the previous month
of
purchase.
The fact that the usual cash spend for purchases remained above 30,000 pounds is
readily
apparent in the aggregate.
The two lowest purchases were recorded in January and February as a result of the
company's lack of product requirements in January
Table 10. Cash disbursement for selling and administrative expenses from Jan to Jun

Jan Feb Mar Apr May Jun

Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,000 £4,000 £4,000 £4,000 £4,000 £4,000
Rental cost £8,000 £8,000 £8,000 £8,000 £8,000 £8,000
Machine - £3,700 - - £2,000 -
Outsources - - £1,580 - - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Depreciation £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £35,000 £38,700 £36,580 £35,000 £37,000 £35,000
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for
selling and administrative
expenses £25,000 £28,700 £26,580 £25,000 £27,000 £25,000

Table 11. Cash disbursement for selling and administrative expenses from Jul to Dec

July Aug Sep Oct Nov Dec

Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,000 £4,000 £4,000 £4,000 £4,000 £4,000
Rental cost £8,000 £8,000 £8,000 £8,000 £8,000 £8,000
Machine £1,000 - - - - -
Outsources - - £2,100 £4,500 - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Depreciation £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £36,000 £35,000 £37,100 £39,500 £35,000 £35,000
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for
selling and administrative expenses £26,000 £25,000 £27,100 £29,500 £25,000 £25,000

Total cash disbursement for S&A expenses = (Salaries and wages + Marketing expense
+ Rental cost + Machine + Other expenses) – Depreciation (Non-cash
expense)
Rental cost: £8,000
Marketing expenses: £4,000
Salary: £12,000
Depreciation (non-cash expenses) £10,000
In February, the business spends £3,700 cash on a new copy machine.
Considering that:
In May, the business spends £2,000 in cash for a computer.
In October, the business pays a company £4,500 in cash to handle a marketing project.
In September, the business solicits bids from companies to provide maintenance
services for
£2,100 in cash.
Depreciation is a non-cash expenditure that needs to be subtracted each month

Table 12. Cash budget from Jan to Jun

Jan Feb Mar Apr May Jun

Cash balance, beginning £18,000 £57,476 £101,607 £129,652 £154,117 £176,939
Add cash collections £88,476 £87,229 £86,070 £83,011 £83,182 £86,982
Total cash available £106,476 £144,705 £187,677 £212,663 £237,299 £263,921
Less cash disbursements
Merchandise purchases £24,000 £14,398 £31,445 £33,546 £33,360 £34,413
Selling and Administrative
expenses £25,000 £28,700 £26,580 £25,000 £27,000 £25,000
Total cash disbursements £49,000 £43,098 £58,025 £58,546 £60,360 £59,413
Excess (deficiency) of cash £57,476 £101,607 £129,652 £154,117 £176,939 £204,508
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £57,476 £101,607 £129,652 £154,117 £176,939 £204,508
 Table 13. Cash budget from Jun to Dec

Jul Aug Sep Oct Nov Dec

Cash balance, beginning £204,508 £230,879 £258,764 £284,142 £308,541 £336,753
Add cash collections £87,419 £87,989 £87,704 £89,566 £90,820 £118,142
Total cash available £291,927 £318,868 £346,468 £373,708 £399,361 £454,895
Less cash disbursements
Merchandise purchases £35,047 £35,104 £35,226 £35,667 £37,609 £43,301
Selling and Administrative expenses£26,000 £25,000 £27,100 £29,500 £25,000 £25,000
Total cash disbursements £61,047 £60,104 £62,326 £65,167 £62,609 £68,301
Excess (deficiency) of cash £230,879 £258,764 £284,142 £308,541 £336,753 £386,594
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £230,879 £258,764 £284,142 £308,541 £336,753 £386,594

Total cash available = Cash balance + Cash collection

Total cash disbursement = Cash disbursement for merchandise purchase + S&A expense
Excess = Total cash available – Excess
Total Financing = Borrowing + Repayments + Interest
Ending cash balance = Excess + Total financing
Briefly, businesses are growing and don't need bank loans.
The cash balance at the conclusion of the quarter progressively increases over time,
showing that the firm' activities have expanded effectively and sustainably.

Effects of Scenarios
Scenario 1
Requirement: Discounting prices by 20 per cent, which in turn increases sales volume
per month by 10 per cent.
 Table 14. Expected Cash Collections from Jan to Jun (Scenario 1)

Jan Feb Mar Apr May Jun

Sale volume 10,461 10,010 9,955 9,526 9,658 10,175
price £7.60 £7.60 £7.60 £7.60 £7.60 £7.60
Sales £79,504 £76,076 £75,658 £72,398 £73,401 £77,330
Cash sales £63,603 £60,861 £60,526 £57,918 £58,721 £61,864
Credit sales £15,901 £15,215 £15,132 £14,480 £14,680 £15,466
Total cash collection £79,803 £76,762 £75,742 £73,050 £73,200 £76,544

Table 15. Expected Cash Collections from Jul to Dec (Scenario 1)

Jul Aug Sep Oct Nov Dec Jan

Sale volume 10,109 10,208 10,142 10,428 10,538 14,465 10,868
price £7.60 £7.60 £7.60 £7.60 £7.60 £7.60 £7.60
Sales £76,828 £77,581 £77,079 £79,253 £80,089 £109,934 £82,597
Cash sales £61,463 £62,065 £61,663 £63,402 £64,071 £87,947 £66,077
Credit sales £15,366 £15,516 £15,416 £15,851 £16,018 £21,987 £16,519
Total cash collection £76,929 £77,430 £77,180 £78,818 £79,922 £103,965 £88,064

Table 16. . Cash budget from Jan to Jun (Scenario 1)

Jan Feb Mar Apr May Jun

Cash balance, beginning £18,000 £48,803 £87,122 £111,540 £130,069 £146,912
Add cash collections £79,803 £76,762 £75,742 £73,050 £73,200 £76,544
Total cash available £97,803 £125,564 £162,864 £184,590 £203,269 £223,457
Less cash disbursements
Merchandise purchases £24,000 £9,742 £24,743 £29,521 £29,357 £30,283
Selling and Administrative
expenses £25,000 £28,700 £26,580 £25,000 £27,000 £25,000
Total cash disbursements £49,000 £38,442 £51,323 £54,521 £56,357 £55,283
Excess (deficiency) of cash £48,803 £87,122 £111,540 £130,069 £146,912 £168,173
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £48,803 £87,122 £111,540 £130,069 £146,912 £168,173
 Table 17. Cash budget from Jul to Dec (Scenario 1)

Jul Aug Sep Oct Nov Dec

Cash balance, beginning £168,173 £188,260 £209,799 £228,879 £246,811 £268,637
Add cash collections £76,929 £77,430 £77,180 £78,818 £79,922 £103,965
Total cash available £245,102 £265,691 £286,978 £307,697 £326,732 £372,602
Less cash disbursements
Merchandise purchases £30,842 £30,892 £30,999 £31,387 £33,096 £38,105
Selling and Administrative
expenses £26,000 £25,000 £27,100 £29,500 £25,000 £25,000
Total cash disbursements £56,842 £55,892 £58,099 £60,887 £58,096 £63,105
Excess (deficiency) of cash £188,260 £209,799 £228,879 £246,811 £268,637 £309,497
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £188,260 £209,799 £228,879 £246,811 £268,637 £309,497
New sale volume = Desired quantity (Table 1) * 110%
New price = Desired price (Table 1) * 80%
Sale volume variance = (New sale volume – Sale volume) * Desired price

Scenerio 2
Requirement: Increasing the marketing budget by 10 per cent per month, which in turn
generates an additional 20 per cent in sales revenue.
The company increasing the marketing budget by 10 per cent per month, hence, cash
disbursement for selling and administrative expenses increase.
New marketing expense = Old marketing expense * 110%
However, this technique results in a 20% increase in sales revenue for the company,
which
is the threshold at which operations may begin.
New sales = Sales * 120%
 Table 18. Expected Cash Collections from Jan to Jun (Scenario 2)

Jan Feb Mar Apr May Jun

Sale volume 11,412 10,920 10,860 10,392 10,536 11,100
price £9.50 £9.50 £9.50 £9.50 £9.50 £9.50
Sales £108,414 £103,740 £103,170 £98,724 £100,092 £105,450
Cash sales £86,731 £82,992 £82,536 £78,979 £80,074 £84,360
Credit sales £21,683 £20,748 £20,634 £19,745 £20,018 £21,090
Total cash
collection £102,931 £104,675 £103,284 £99,613 £99,818 £104,378

Table 19. . Expected Cash Collections from Jul to Dec (Scenario 2)

Jul Aug Sep Oct Nov Dec Jan

Sale volume 11,028 11,136 11,064 11,376 11,496 15,780 11,856
price £9.50 £9.50 £9.50 £9.50 £9.50 £9.50 £9.50
Sales £104,766 £105,792 £105,108 £108,072 £109,212 £149,910 £112,632
Cash sales £83,813 £84,634 £84,086 £86,458 £87,370 £119,928 £90,106
Credit sales £20,953 £21,158 £21,022 £21,614 £21,842 £29,982 £22,526
Total cash
collection £104,903 £105,587 £105,245 £107,479 £108,984 £141,770 £120,088

Table 20. Cash disbursement for selling and administrative expenses from Jan to Jun
(Scenario 2)

Jan Feb Mar Apr May Jun

Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,400 £4,400 £4,400 £4,400 £4,400 £4,400
Rental cost £8,000 £8,000 £8,000 £8,000 £8,000 £8,000
Machine - £3,700 - - £2,000 -
Outsources - - £1,580 - - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Decreciation (non-cash expenses) £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £35,400 £39,100 £36,980 £35,400 £37,400 £35,400
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for selling
and administrative expenses £25,400 £29,100 £26,980 £25,400 £27,400 £25,400
Table 21. Cash disbursement for selling and administrative expenses from Jul to Dec
(Scenario 2)

July Aug Sep Oct Nov Dec

Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,400 £4,400 £4,400 £4,400 £4,400 £4,400
Rental cost £8,000 £8,000 £8,000 £8,000 £8,000 £8,000
Machine £1,000 - - - - -
Outsources - - £2,100 £4,500 - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Decreciation (non-cash expenses) £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £36,400 £35,400 £37,500 £39,900 £35,400 £35,400
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for selling
and administrative expenses £26,400 £25,400 £27,500 £29,900 £25,400 £25,400

Table 22. Cash budget from Jan to Jun (Scenario 2)

Jan Feb Mar Apr May Jun

Cash balance, beginning £18,000 £70,099 £123,516 £158,639 £192,596 £224,982
Add cash collections £102,931 £104,675 £103,284 £99,613 £99,818 £104,378
Total cash available £120,931 £174,774 £226,800 £258,252 £292,415 £329,361
Less cash disbursements
Merchandise purchases £25,432 £22,158 £41,181 £40,256 £40,032 £41,295
Selling and Administrative
expenses £25,400 £29,100 £26,980 £25,400 £27,400 £25,400
Total cash disbursements £50,832 £51,258 £68,161 £65,656 £67,432 £66,695
Excess (deficiency) of cash £70,099 £123,516 £158,639 £192,596 £224,982 £262,665
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £70,099 £123,516 £158,639 £192,596 £224,982 £262,665
 Table 23. Cash budget from Jul to Dec (Scenario 2)

Jul Aug Sep Oct Nov Dec

Cash balance, beginning £262,665 £299,111 £337,173 £372,646 £407,425 £445,879
Add cash collections £104,903 £105,587 £105,245 £107,479 £108,984 £141,770
Total cash available £367,568 £404,698 £442,418 £480,126 £516,409 £587,650
Less cash disbursements
Merchandise purchases £42,057 £42,125 £42,271 £42,800 £45,130 £51,961
Selling and Administrative
expenses £26,400 £25,400 £27,500 £29,900 £25,400 £25,400
Total cash disbursements £68,457 £67,525 £69,771 £72,700 £70,530 £77,361
Excess (deficiency) of cash £299,111 £337,173 £372,646 £407,425 £445,879 £510,288
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £299,111 £337,173 £372,646 £407,425 £445,879 £510,288

Cost of products sold and required purchases rise together with an increase in sales
revenue.
The increase in required purchases in January is the scenario's high point. The
corporation doesn't need to buy more goods since, according to the prediction, the
inventory on December 31 (the end of the previous year) was more than the overall
required.
Scenario 3
Requirement: Offering suppliers one-month’s trade credit
Table 24. Cash disbursement for merchandise purchases from Jan to Jun (Scenario 3)

Jan Feb March April May June

December purchases £24,000 - - - - -
January purchases - £0 - - - -
February purchases - £28,796 - - -
March purchases - - - £34,094 - -
April purchases - - - - £32,999 -
May purchases - - - - - £33,721
June purchases - - - - - -
July purchases - - - - - -
August purchases - - - - - -
September purchases - - - - - -
October purchases - - - - - -
November purchases - - - - - -
December purchases - - - - - -
Total cash disbursements for
purchases £24,000 £0 £28,796 £34,094 £32,999 £33,721

Table 25. Cash disbursement for merchandise purchases from Jul to Dec (Scenario 3)

July August Sep Oct Nov Dec

December purchases - - - - - -
January purchases - - - - - -
February purchases - - - - - -
March purchases - - - - - -
April purchases - - - - - -
May purchases - - - - - -
June purchases £35,104 - - - - -
July purchases - £34,990 - - - -
August purchases - - £35,218 - - -
September purchases - - - £35,234 - -
October purchases - - - - £36,100 -
November purchases - - - - - £39,117
December purchases - - - - - -
Total cash disbursements for
purchases £35,104 £34,990 £35,218 £35,234 £36,100 £39,117
 Table 26. Cash budget from Jan to Jun (Scenario 3)

Jan Feb Mar Apr May Jun

Cash balance, beginning £18,000 £57,476 £116,005 £146,699 £170,616 £193,799
Add cash collections £88,476 £87,229 £86,070 £83,011 £83,182 £86,982
Total cash available £106,476 £144,705 £202,075 £229,710 £253,798 £280,781
Less cash disbursements
Merchandise purchases £24,000 £0 £28,796 £34,094 £32,999 £33,721
Selling and Administrative
expenses £25,000 £28,700 £26,580 £25,000 £27,000 £25,000
Total cash disbursements £49,000 £28,700 £55,376 £59,094 £59,999 £58,721
Excess (deficiency) of cash £57,476 £116,005 £146,699 £170,616 £193,799 £222,060
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £57,476 £116,005 £146,699 £170,616 £193,799 £222,060

Table 27. Cash budget from Jul to Dec (Scenario 3)

Jul Aug Sep Oct Nov Dec

Cash balance, beginning £222,060 £248,375 £276,373 £301,759 £326,591 £356,311
Add cash collections £87,419 £87,989 £87,704 £89,566 £90,820 £118,142
Total cash available £309,479 £336,364 £364,077 £391,325 £417,411 £474,453
Less cash disbursements
Merchandise purchases £35,104 £34,990 £35,218 £35,234 £36,100 £39,117
Selling and Administrative
expenses £26,000 £25,000 £27,100 £29,500 £25,000 £25,000
Total cash disbursements £61,104 £59,990 £62,318 £64,734 £61,100 £64,117
Excess (deficiency) of cash £248,375 £276,373 £301,759 £326,591 £356,311 £410,336
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £248,375 £276,373 £301,759 £326,591 £356,311 £410,336

When a firm utilizes one month trade credit, it means they pay for the previous
month's purchases in the current month, rather than splitting the payment between
the current
and previous month. As a result, the firm experiences a significant reduction in cash
outlays for purchases at the end of each month compared to their initial expectations.

Having more cash on hand due to this trade credit arrangement allows the company to
engage in increased operational activities. This suggests that the company has a slower
rate of capital turnover. Consequently, the final balance at the end of the month increases
as a result of the additional cash on hand. It's important to note that this variation in
cash flow does not impact sales or product volume.
Scenerio 4
Requirement: Reducing rental/property related costs by 15 per cent per month
Table 28. . Cash disbursement for selling and administrative expenses from Jan to Jun
(Scenario 4)
Jan Feb Mar Apr May Jun
Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,000 £4,000 £4,000 £4,000 £4,000 £4,000
Rental cost £6,800 £6,800 £6,800 £6,800 £6,800 £6,800
Machine - £3,700 - - £2,000 -
Outsources - - £1,580 - - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Depreciation £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £33,800 £37,500 £35,380 £33,800 £35,800 £33,800
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for selling
and administrative expenses £23,800 £27,500 £25,380 £23,800 £25,800 £23,800
Table 29. Cash disbursement for selling and administrative expenses from Jul to Dec
(Scenario 4)

July Aug Sep Oct Nov Dec

Salaries and wages £12,000 £12,000 £12,000 £12,000 £12,000 £12,000
Marketing expense £4,000 £4,000 £4,000 £4,000 £4,000 £4,000
Rental cost £6,800 £6,800 £6,800 £6,800 £6,800 £6,800
Machine £1,000 - - - - -
Outsources - - £2,100 £4,500 - -
Other expenses £1,000 £1,000 £1,000 £1,000 £1,000 £1,000
Depreciation £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total expenses £34,800 £33,800 £35,900 £38,300 £33,800 £33,800
Non-cash expenses £10,000 £10,000 £10,000 £10,000 £10,000 £10,000
Total cash disbursements for selling
and administrative expenses £24,800 £23,800 £25,900 £28,300 £23,800 £23,800

Table 30. Cash budget from Jan to Jun (Scenario 4)

Jan Feb Mar Apr May Jun

Cash balance, beginning £18,000 £58,676 £104,007 £133,252 £158,917 £182,939
Add cash collections £88,476 £87,229 £86,070 £83,011 £83,182 £86,982
Total cash available £106,476 £145,905 £190,077 £216,263 £242,099 £269,921
Less cash disbursements
Merchandise purchases £24,000 £14,398 £31,445 £33,546 £33,360 £34,413
Selling and Administrative
expenses £23,800 £27,500 £25,380 £23,800 £25,800 £23,800
Total cash disbursements £47,800 £41,898 £56,825 £57,346 £59,160 £58,213
Excess (deficiency) of cash £58,676 £104,007 £133,252 £158,917 £182,939 £211,708
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £58,676 £104,007 £133,252 £158,917 £182,939 £211,708
 Table 31. Cash budget from Jul to Dec (Scenario 4)

Jul Aug Sep Oct Nov Dec

Cash balance, beginning £211,708 £239,279 £268,364 £294,942 £320,541 £349,953
Add cash collections £87,419 £87,989 £87,704 £89,566 £90,820 £118,142
Total cash available £299,127 £327,268 £356,068 £384,508 £411,361 £468,095
Less cash disbursements
Merchandise purchases £35,047 £35,104 £35,226 £35,667 £37,609 £43,301
Selling and Administrative
expenses £24,800 £23,800 £25,900 £28,300 £23,800 £23,800
Total cash disbursements £59,847 £58,904 £61,126 £63,967 £61,409 £67,101
Excess (deficiency) of cash £239,279 £268,364 £294,942 £320,541 £349,953 £400,994
Financing
Borrowing - - - - - -
Interest - - - - - -
Repayments - - - - - -
Total financing - - - - - -
Ending cash balance £239,279 £268,364 £294,942 £320,541 £349,953 £400,994

When the outflow of cash declines, the corporation gains greater flexibility to allocate
large sums of money towards other operational activities. This advantageous situation
provides the company's management with more options to consider and implement.
They can strategically utilize the surplus cash for various purposes that align with the
organization's goals and objectives. This scenario highlights the potential benefits that
can arise from effectively managing and optimizing cash flow within the company
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