Question

Which of the following is NOT correct concerning the cash budget? 

Multiple Choice 

 It is not necessary to prepare any other budgets before preparing the cash budget. 

 The cash budget should be prepared before the budgeted income statement.

 The cash budget should be prepared before the budgeted balance sheet.

 The cash budget builds on earlier budgets and schedules as well as additional data. o

Answer 1

The correct answer is Option A

It is not necessary to prepare any other budget before preparing the cash budget.

Reason

Cash budget is the budget which records all the cash receipts and disbursements done by the company.

Principal Objectives of Cash Budget:

Cash budget in a firm is prepared to accomplish the following objectives:

(1) To project firm’s cash position in future period.

(2) To predict cash surplus or deficit for the ensuing months.

(3) To permit planning for financing in advance of need. By indicating when cash will be required, the budget helps the management to arrange in advance bank loans or other short-term credits, to prepare for a sale of securities or to make other preparations for new financing.

(4) To help in selection of proper source of financing cash requirements of the firm.

(5) To permit proper utilisation of idle cash.

(6) To maintain adequate balance between cash and working capital, sales, investments and loans.

(7) To exercise control over cash expenditure by limiting the spending of various departments.