![]() Difficulties in the Preparation of Cash Budget.Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities. It also projects cash deficiencies and excesses, thereby indicating the need for either borrowing or investing.Ĭash budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time. The amount of cash a company has made available determines its ability to take advantage of trade discounts, meet obligations falling due, etc. The cash budget shows the net effect on cash resources of all the expected transactions of a company during the budget period. The other budgets, however, are prepared on what is commonly known as the accruals basis. The essential distinction between cash budget and other budgets is that, in the former, all the estimates are based on the dates when it is expected that cash would be received or paid. In simple words, its basic idea is to predict when and in what quantity the receipts of cash would come into the firm and when and in what quantity the payments in cash would be made.Ī cash budget is a forecast of anticipated cash receipts and disbursements. It is a method of predicting the amount of funds and the time when they would be required by an organisation. A cash budget is also referred to as a cash flow forecast.
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