Question

How does management use the cash budget to motivate employees?

How does management use the cash budget to control the operations?

The use of estimates is important in the cash budget, how can management ensure the proper estimates have been made? What are the results if estimates are too high? What are the results if estimates are too low?

Answer 1

Note: the question has 5 parts and each will be numbered from 1-5

1. Setting up cash budgets eiwi definitely motivate the employees.since cash is an essential and sensitive asset of the organization and the employees psychologically have a thought that if the cash budgets are framed and maintained appropriately then that will be directly propotional to their earnings and increase in income. If the budgets are appropriate then that will increase their income.

2.The difference between a company that succeeds and one that fails is often cash management. Having too little cash means a business may have to pass on profitable ventures or take out loans to overcome liquidity issues. Too little cash may also mean a company may be unable to operate at normal levels or be forced to shut down completely. To avoid these issues, companies rely on a cash budget to plan and control cash receipts and payments.

3.Cash budgets are generally used to estimate whether a company has a sufficient amount of cash to uphold regular operations. It can also be used to determine whether too much of a company’s cash is being spent in unproductive ways.

By creating a cash budget - wherein a company develops a summary of the anticipated revenues, operating expenditures, sale and purchase of assets, and admission or settlement of debt – it is possible to determine when more cash resources are needed, as well as when there will be an excess of cash

4. If the cash budgets are too high then it will lead to too much utilisation of funds.

5. If the cash budgets are too low then it will result in deficiency in liquidity and lead to cash crunch in the organization.