CASH BUDGETSAK

Cash budget is a summary statement of the firms expected cash inflows and outflows over a projected time period. cash budget involves a projection of future cash receipts and cash disbursements over various time intervals.

FUNCTIONS OF CASH BUDGET

• Determining the future cash needs of the firm• Planning for financing of those needs.• Exercising control over cash and liquidity of the

firm.{The overall objective of a cash budget is to enable the firm to meet all its commitments in time and at the same time prevent accumulation of unnecessary large balance with it}

Why are cash budgets prepared?

Assists with the identification of when commitments are dueEnsures money is available at that time Important business able to meet commitments as

they fall due If debts are not paid on time poor reputation will

affect credit rating of business

Cash

Bud

gets

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METHODS OF PREPARING A CASH BUDGETCash budget can be prepared by many methods . some of them are ,Receipts and payments methodAdjusted profit and loss a/c methodBalance sheet method

RECEIPTS & PAYMENTS METHOD

The cash receipts from various sources and cash payments to different agencies are estimated.The receipts and payments may be divided into two specific categoriesa) Receipts (capital,revenue)b) Payments(capital,revenue)

ADJUSTED PROFIT AND LOSS A/C

The cash budget is prepared on the basis of opening cash and bank balances , projected profit and loss a/c and balance of various asset and liabilities. Under this method ,the forcasted profit is adjusted for non-cash items in the profit and loss a/c like depriciation ,provisions ,accurals etc By preparing adjusted profit and loss a/c to find out the cash made available by the profit.This method is used for long- term cash budget.

BALANCE SHEET METHODUnder this method a budgeted balance sheet is prepared by estimating all assets and liabilities exept cash. The balancing figure of two sides of the estimated balance sheet is taken as cash balnce .This method is also used for long term cash budget.

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