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Accounting - Cash variance analysis

Cash variance analysis

A variance report shows the difference between actual figures and budgeted
figures for a period of time. Variance reports may be applied to any type
of financial report. The cash variance report brings together the statement
of receipts and payments and the cash budget.

BUDGET
ACTUAL
VARIANCE
FAVOURABLE (F)/UNFAVOURABLE (UF)

$
$

BANK BALANCE - 1 JAN.
4 000
4 000

+ CASH RECEIPTS

Cash sales
18 800
16 800
- 2000
UF UF

Debtors
4 000
7 600
+ 3 600
F F

Capital
11 600
23 000
+ 11 400
F F

TOTAL CASH RECEIVED
38 400
51 400
+ 13 000
F F

- Cash payments

Advertising
800
300
+ 500
F F

Sales commission
500
200
+ 300
F F

Vehicles
10 000
12 000
- 2 000
UF UF

Wages
8 000
10 000
- 2 000
UF UF

Creditors
3 000
2 000
+ 1 000
F F

Drawings
5 000
4 000
+ 1 000
F F

Loan
5 000
6 500
- 1 500
UF UF

Rent
1 000
1 100
- 100
UF UF

TOTAL CASH PAYMENTS
33 300
36 100
- 2 800
UF UF

BANK BALANCE - 31 DEC.
5 100
(15 300)
10 200
F F

The preparation of the cash variance report requires the format set out.
This is usually provided in the answer booklet in the examination. Many
figures are also provided. Reconstruction of accounts may be necessary to
determine amounts paid/received, opening or closing balances. You will also
have to determine arithmetically the amount of the variance and whether it
has been favourable or unfavourable.

Marks are hard to get and showing all cash receipts entries correct in all
columns may only earn a single mark. Many students lose marks by not
showing totals for cash receipts, payments and the bank balance.

From the above variance you may be asked:

* to comment on liquidity and to suggest strategies to help improve
liquidity

* to explain the deterioration in liquidity

* to comment on whether the increased spending on vehicles is necessarily
unfavourable

* to link the decline in sales to other expenses and suggest reasons why
this occurs

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