Question

Define cash budget and why it is important to the company?

Answer 1

BUDGETS

Budget is a plan about how to utalize your money and the process of creating a plan to spend your money is called budgeting.

BUDGETS

TIME FACTOR FUNCTION   FLEXIBILITY

LONG TERM BUDGETS FINANCIAL BUDGET MASTER BUDGET FLEXIBLE BUDGET

SHORT TERM BUDGETS OPERATING FINANCIAL FIXED BUDGET

CURRENT BUDGETS BUDGET; BUDGET;

eg; sales budget, eg; cash budget,

production budget etc.... working capital budget etc......

CASH BUDGET;

Cash bugget is a statement showing estimated cash inflow and outflow over the budgeted period.Cash budget can be defined as an estimate of receipts and payments for each month or other period forming part of the whole budget period. it is essential to allow for the lag between certain transaction and receipt or payment of the relative cash. It is prepared after preparation all other functional budgets.

Cash budget is important for a company because of the following reasons;

• Cash budget is an analysis of flow of cash in a business over a future, short or long period of time. So it forecast expected cash intake and oulay of a company and by this they can control cash flows. So it ensure sufficient cash availability when its required.
• Shortage of finance can be known in advance and necessary requirement can be taken in advance if there arise any needs.
• It enable a company to plan for financing a new project.
• It enable a company to prepare a plan about borrowing schedules.
• It enable a company to plan dividend payments in advance.
• It shows expected surplus fund which may be invested profitably ouside the company.
• It helps to forcast all possible source from which cash will be received and the channel in which payments are to be made so that a consolidated cash positon is determined and can decide companys future plans.

In overall we can say that without cash budget a company canot suastain and not able to make profit.