Question

read the following statement: "If it is a negative value, a net debit position, then they are earning less money than they are spending, creating a negative cash flow situation. This is where budgeting comes into play."

Agree or Disagree. Justify your position.

Answer 1

A negative cash flow is representation of higher cash outflows than cash inflows and it will represent that an organisation is spending more than it is earning. They will be trying to adopt the budgeting process In order to determine to increase organisational value.

I agree with the given statement that budgeting will be helpful in determination of cash flows in advance and it will be helpful in comparing with the actual figures with the standard figure and finding out the deviations between them so that proactive measures can be taken in order to overcome the derivation and maintain a uniform stream of cash flows and select only those products which are helpful in generating positive net cash flows to the company.

So it can be said that if the negative value is there in the the cash flow statement then company is earning less money then what their spending, so they will be needing to adopt the capital budgeting process in order to maximize their earnings and minimise their outflows so that overall value of the organisation can be maximized.