Analysis of Pompido Ltd.'s Monthly Cash Budget: Management Accounting and Cash Budget Assignment Sample

Introduction Of Management Accounting Assignment - Detailed Review of Cash Flows and Financial Health

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CASH BUDGET

Monthly Cash Budget

Cash Collection

Reports

Significant issues revealed by the cash budget

The report mainly and solely consists of the finances of the company Pompido Ltd. for the year 30 June, 2022. It talks about the cash budget mainly, which also includes the cash transactions that have taken place in the previous month. By analysing all the above verifacts, it has been clearly seen that the amount that is to be taken by the debtors is very much, as the cash collected by them is also distributed among the following months, and the irrecoverable amount in that is also too high when compared (Mariana, 2018). The cash collected in the months of July, August and September has increased to some extent considering the cash discount also, but it should make provisions regarding this also. With this it has also been clearly observed that with the increasing prices the unit cost has also increased in terms of the overheads, which are also leading to the deduction. It has also been visible by the analysis that some of the major expenses have been intact and there is no increase in the amount of them. With this it can be said that a proper monitoring of all these facts can lead to the proper and sustainable growth of the company in the long run when compared with the other companies so far in this area (DeFranco et al., 2017).

Sensitivity of the cash flows to changes in monthly demand

The cash flows in the following months play a vital role in the company, as it is always assumed to have a great amount of cash at the ending of the month so that there is no problem in carrying out the future transactions but here, it has been seen that the cash amount at the end of the month is decreasing drastically. The expenses are also increasing, making a great impact on the operating income and not leaving sufficient funds behind (Mariana, 2018). It also keeps the investment as a major part, which is also to be increased in the following months, leading to the increase in the expenses. The total cash balance as of the first month was high and then kept on declining with the increase in the expenses. This could be the reason that the debtors collection period is not going as expected (Njeru Mugambi Duncan et al., 2015). The financing activities in the cash flow are also affected by the accrual amount in the company and should be cleared as soon as possible. In addition to this, it can be said that these activities will only determine the cash and cash equivalents at the end of the months, keeping everything in place so the cash flow should not be neglected, as it is the blood in any organisation (Chang et al., 2014).

Appropriate advice to the directors of Pompido Ltd to improve the cash flow

Yes, it is a very crucial and important decision, which the directors of Pompido Ltd. should take upon the cash flows in the company. They should clearly and closely monitor all the activities going on in the organisation and keep track of the cash transactions and the amount that is to be taken by debtors (Mariana, 2018). They should also try to reduce the expenses so far as by limiting this, they will have a good amount of cash left at the end of the month, which could be utilised in the following or the further months in the year. In addition to this, the Board of Directors should also try to reduce the other major variable expenses, which will also lead to the increase in the cash collected amount (Njeru Mugambi Duncan et al., 2015). The personal vigilance among records with the debtors’ collection period should be reviewed and reduced so that the amount gets rotated every now and then and there is no backlog among the amount. They should also look at the irrecoverable or bad debt amount if anything should be recovered from them and also with this, the amount of accrual should also not be neglected.

REFERENCES

• Chang, X., Dasgupta, S., Wong, G. and Yao, J., 2014. Cash-flow sensitivities and the allocation of internal cash flow. The Review of Financial Studies, 27(12), pp.3628-3657.
• DeFranco, A.L. and Schmidgall, R.S., 2017. Cash Budgets, Controls, and Management in Clubs. The Journal of Hospitality Financial Management, 25(2), pp.112-122.
• Mariana, Z., 2018. THE CASH BUDGET–A SHORT-TERM FORECAST TOOL FOR THE FINANCIAL STATEMENTS OF ECONOMIC ENTITIES. Ecoforum Journal, 7(2).
• Njeru Mugambi Duncan, D., Njeru, A., Member, F. and Tirimba, O.I., 2015. Effect of Cash Management on Financial Performance of Deposit Taking SACCOs in Mount Kenya Region. International Journal of Scientific and Research Publications, 5(2), pp.1-6.