CASH BUDGET

PRESENTED BY YADHUKRISHNA DINESH

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A cash budget is a forecast of estimated cash receipts, estimated cash payments and the resultant cash position for a certain period of time.

Cash Budgets
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 Income Statement
Balance Sheet Statement of Cash Flow

Past events

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 Budgets

Future events

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 Assists

with the identification of when commitments are due

Ensures 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

Why are cash budgets prepared?

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 Reveals periods of excess funds

Business should avoid idle funds left in bank accounts Low interest returns on these accounts Identifying such periods allows scheduling of investments into short-term money markets, fixed deposits, government securities etc

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 Reveals weaknesses in businesss debt

collection policy

Average collection period for accounts receivable to pay is 3 months Normal terms of credit are 30 days Steps can be taken to improve credit collection

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 Adjustments for seasonal fluctuations can

be made

Some businesses experience high/low sales in certain parts of the year

Tourism Farming Department

stores

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 Budget reveals periods when shortages of

funds may occur

These periods can be identified ahead of time Arrangements can be made with banks to meet shortfalls bank overdraft Steps may be made to avoid these shortages or to repay overdrafts as soon as possible to avoid high levels of interest repayments. Cash budgets are often demanded by banks when business seek application for loan
Used

to identify if business is capable of meeting repayments

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 Budgets are a form of control

Targets set assist with the monitoring of employee work Investigations into the difference between actual and budgeted figures should reveal why differences have occurred Steps can be taken to correct practice

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Particulars Opening balance at the beginning of month. ADD: Receipts

Period 1

Period 2

Period 3

(A) LESS: Payments

(B) Closing balance at the end of month. (A B)

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Question: Prepare a Cash Budget for January, February and March, 2010 from the following information. Information regarding January, 2010 Cash sales - - - 100,000/ Cash Purchase - - - 60,000/ Expenses - - - 10,000/ Collection from Debtors - - - 30,000/ Payment to Creditors - - - 20,000/-

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Information regarding February, 2010 Cash sales - - - 200,000/ Cash Purchase - - - 80,000/ Expenses - - - 15,000/ Collection from Debtors - - - 50,000/ Payment to Creditors - - - 10,000/Information regarding March,2010 Cash sales - - - 150,000/ Cash Purchase - - - 100,000/ Expenses - - - 20,000/ Collection from Debtors - - - 20,000/ Payment to Creditors - - - 70,000/Opening Balance for 1st January is 15,000/-.
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THANK YOU

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