Question

On this topic, you are required to prepare your monthly cash budget for the month of June 2020, if (assuming) there are 4 different sources of income and 12 different expenses and debt repayments.

“Preparing monthly cash budget is an indicator for your personal financial growth’’. In reference to this statement, you are required to provide the reasons/importance of preparing your monthly cash budget. (1200 words)

Note:

Please write 1200 words

Answer 1

Cash budgeting is vital to an organization because it allows them to guarantee they have enough cash on hand to cover times of increased costs and unanticipated circumstances in the market.

Importance of Cash Budget

Cash budget is an important tool in the hands of financial administration for the planning and control of the working funding to guarantee the solvency of the firm. The importance of cash budget might be summed up as follow:

1. Helpful in Planning: Cash budget helps planning for the most effective utilization of cash. It points out cash overflow or lack at chosen point of time and empowers the administration to mastermind the insufficiency before time or to get ready for investing the excess money as profitable as possible without any danger to the liquidity.

2. Forecasting the Future needs: Cash budget forecasts the future needs of assets, its time and the amount well ahead of time. It, along these lines, helps planning for raising the assets through the most profitable sources at reasonable terms and costs.

3. Maintenance of Ample cash Balance: Cash is the premise of liquidity of the undertaking. Cash budget helps in maintaining the liquidity. It recommends satisfactory cash balance for anticipated prerequisites and a reasonable margin for the contingencies.

4. Controlling Cash Expenditure: Cash budget goes about as a controlling gadget. The costs of various divisions in the firm can best be controlled so as not to surpass as far as possible.

5. Evaluation of Performance: Cash budget goes about as a standard for evaluating the financial performance.

6. Testing the Influence of proposed Expansion Program: Cash budget forecasts the inflows from a proposed expansion or investment program and affirm its effect on cash position.

7. Sound Dividend Policy: Cash budget plans for cash profit to shareholders, consistent with the fluid position of the firm. It helps in following a sound consistent profit policy.

8. Premise of Long-term Planning and Co-ordination: Cash budget helps in co-coordinating the various finance functions, for example, deals, credit, investment, working capital and so forth it is an important premise of long term financial planning and helpful in the investigation of long term financing as for probable amount, timing, forms of security and methods of reimbursement

9. Utilizing a Cash Budget

The cash budget is management's approximation of cash on hand at the start of a budget period and the estimated cash inflows and surges. The cash inflows may incorporate those that outcome from cash sales, the sale of assets, the assortment of accounts receivable, getting cash or stock issuance. The cash outpourings may incorporate payment for material purchases, obligation repayment, asset acquisition, taxes, manufacturing expenses and profits.

The cash budget features a company's probable pay or shortage for a period, the latter of which the company must address by increasing sales or decreasing uses. The advantages of a cash budget lies in its ability to recognize a company's future financing needs, feature the requirement for restorative actions and evaluate a company's performance.

10)Financing Needs and Costs

One of the advantages of a cash budget is that a company can anticipate when a cash shortage may exist and the degree of that shortfall. Thusly, the budget indicates when a distinction among budgeted and actual values may should be made up by getting. Transient financing may be required to acquire stock, advance items or pay month to month costs.

By anticipating cash prerequisites, a company can also evaluate future business openings in part based on an open door's probable financing needs and expenses. For instance, financing costs will impact the profitability of a merger and item improvement. This procedure allows a company to choose just those organizational goals that are financially feasible. Restorative Actions for Cash-Flow Issues

A cash budget is a way to decide whether a company has the cash necessary to meet up and coming obligations and to trigger remedial actions if a company encounters cash budget issues. For example, a company encountering cash budget issues may need to acquire cash in the present moment for crisis hardware repairs, the payment of taxes or a regularly scheduled payroll.

The company may also need to get cash in the long haul for the acquaintance of another item with the market or the replacement of gear. Or then again the company may require react to a sharp decrease in market sales by adjusting spending or costs or negotiating progressively favorable terms with banks.

13)Analyzing Company Performance

A cash budget is utilized to illustrate a company's financial situation to internal and external stakeholders — individuals with an enthusiasm for the company — including speculators, providers and company leadership. For example, increasing cash stream may indicate solid demand for the company's items and open doors for company expansion, which are certain signals to present and potential financial specialists.

In contrast, if company costs are significantly more than the company's cash inflow, the venture chance is high and may stop additional interest in the company. Declining cash stream may also make it increasingly hard for a company to obtain additional merchant credit or pay its current obligation, which may drive the company into bankruptcy.