All this focus on protecting cash has jogged Mark’s memory and he recalls working on Cash...

All this focus on protecting cash has jogged Mark’s memory and he recalls working on Cash Flow Statements and Cash Budgets while at University. Mark would like you to explain to him the role of these two items in the protection and management of cash.

Expert Solution

cash flow statement and cash budget:-

cash flow statement tell the overall flow of the cash whether inflow or outflow from all the related business transactions. All the related business transaction can be categorised into three category i.e

(1) operating activities (2) finacial activities (3) investment activities. cash flow stament shows the historical movement of the cash in the given perioed of time from the above mentions activities.

In such way it helps to understand the business that how much cash is getting and expnesing though business operations. similary financing activities describe the historical movement of getting funds from shares debentures or other source of finance and repayment of short term and long term credit or loans. Further investing activies decribes the utilisation of funds into purchase of long term and short term assest. Mangement of cash is best through cash flow statements as it tells that how much cash is generating business and in which expenses it is metting out. Cash generated through long term sources should be used in long terms assets generating which is described by financing and investing activities.

Importance of cash budget. Like other budgets cash budget forcast the future cash flow. It describe how much cash will be collected and at what time and how it will be utilised. It is generally said that what is on black and white can be easily controlled. How much cash willbe collected form debtors and payment of creditors in due time. similary cash from sales or from financing activites is considered and if it is short arrangement is done through bank credit or loan or other proper form according to the time span, liquidity or cost basis.A proper level needs to be maintaned through cash budget in the entity. If cash is shortfall, it is arranged and if it is excess then it is invested to generate income. Cash budget provides the management a level to maintain through best activities and if there any deviation from that standard then reasons are to find and corrective measures to be taken.

Conclusion:-cash is liquid asses and needs to be properly controlled and managed. Becaused excess of it decrease profit of the firm and its misutilisation whereas lack of it can affects the functionalty of the firm.

ekkarill92 answered 2 years ago

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