Question

When researching information to complete the cash flow budget, what needs to be considered?

Answer 1

Cash flow budget: it's a budget of cash inflows and cash outflows during a given period of time.

To complete a cash flow budget

For inflows

• Cash received from sales: cash sales are recorded in the same month in which sales were made and other credit sales are recorded in the period when such sales amount is actually received  
• Other income : income in form of interest / dividend received is recorded when it is actually received.

For outflows

• Payments made for purchases: payments made to creditors for the purchases as per the credit policy is recorded as expense in the given period when the payment have been actually made.
• Expenses for interest : cash balance is reduced when the estimates for interest expense is recorded in the budget
• Expenses for dividend paid : estimates for dividend payments during a given period is recorded for ascertaining cash balance in budget period.
• Office expenses paid: office expenses estimates to be paid are outflows and effect the cash balance.
• Wages paid: wages to be paid in cash as per the organisation's policy reduces the cash balance and becomes part of the budget  
• Factory expenses paid: cash expenses estimates incurred are accounted for in the budget.
• Other expenses : other cash expenses which are to be paid also form part of this budget during a given period of time

After taking into account cash inflows and cash outflows during a given period of time cash surplus and cash deficit balance is derived and short term decisions like investments of surplus cash or by taking loans of the deficit cash balance can be taken well in time and thus not effecting the regular functioning of the organisation and smooth running of operations is taken care of.

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