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Cash Budget
The cash budget estimates cash inflows, outflows, and resulting surpluses or deficits over a specific period. It is foundational for understanding financial timing, surplus/shortage quantum, and facilitates planning for projects, borrowing, and taking advantage of cash discounts. Two main preparation methods for cash budgets are the receipts and payment method and the adjusted net income method.
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Cash Budget
- 1.
- 2. Cash Budget repreststhe amount of estimated cash inflows, estimated cash outflow and deficits/surplus over a given budget period.
- 3. Basis of cashBudget Cash budget is based on- 1.Sales budget 2.Direct material purchase budget 3.Direct labour cost budget 4.Production overheads budget 5.Administrative cost budget 6.Selling & Distribution cost Budget
- 4. Importance of CashBudget 1. It enables the management to determine the timing when there is likely to be a surplus/ shortage of cash. 2. It enables the management to determine the quantum of surplus/shortage of cash. 3. It enables the management to determine the period for which the situation of shortage / surplus is likely to be continued. 4. It enables the management to perpare the borrowinf schedule. 5. It enables the management to plan for financing a new project. 6. It enables the management to take advantage of cash discount.
- 5. Methods of preparation Twopopular Methods of preparing cash Budget are: 1.Receipts and payment Methods 2.Adjusted Net Income Method
- 6. Methods of preparation Twopopular Methods of preparing cash Budget are: 1.Receipts and payment Methods 2.Adjusted Net Income Method