CIMA F1 Syllabus D. Management Of Working Capital And Cash - Cash surpluses and deficits - Notes ^{12 / 12}

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