Cash surpluses and deficits

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Cash surpluses and deficits

Cash surpluses and deficits occur as a result in timing differences between the receipt of cash and the necessity to settle obligations punctually.

Cash deficits

General rules:

  • If a deficit results, then the company should have overdraft faciltities in place with a bank

  • If deficits prove to be short-term in nature, then the company should consider short-term borrowing

  • If deficits prove to be longer-term in nature, then the company should consider longer-term  borrowing

Cash surpluses

Surplus Funds = Money remaining after all liabilities, including taxes, insurance, and operating expenses, are paid. 

Having surplus funds means that a company has made a profit or perhaps that it has completed a project under budget.

In the event of surpluses, these can be invested in:

  1. T-bills

  2. Bank deposits

  3. Money- market deposits

  4. Certificates of deposit

  5. Government bonds

  6. Local authority stock

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