Question

Explain how the cash budget is used in short-term financial planning

Answer 1

The cash budget is always used for the short term financial planning where sufficient cash for operations and liabilities. It shows the exactly how the cash will flow in any given period, here the process of creating a budget and connect it with real position to manage any kind of shortfalls and proper use of excess funds.

The short term financial planning requires the following which are fulfilled by Cash budget :

1. Transaction as primary level: The cash budget shows all the cash movement at the initial and primary level.
2. Usage with availability : The cash budget used to find whether short term cash is available for usage or not.
3. Cash position : The month by month assessment of the short term financial needs and opportunities for the business.
4. Bargaining with availability: The cash budget will inform about the availability of the cash so that proper bargaining will take place towards purchase.
5. Cash gain : The net expenditure and the cash revenues on them will provide us with the cash gain on the short term Income statement.

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