cash budget
Introduction to budget
A budget is a financial plan for business, prepared in advance. It is defined by cima as ‘a plan expressed in money’.
Cash flow forecasting is the process of estimating cash inflows and cash outflows over a period of time, usually for a period of 1 year.
Cash Budget is the process of estimating cash inflows and cash outflows over a period of time, usually prepared monthly.
Cash flows is the amount of money flowing into and out of a business over a period of time.
Cash inflows are the receipts of cash, typically arising from sales of items, payment of debtors, loan received, rent charged, sale of assets and interest received.
Cash outflows are payment of cash, typically arising from the purchase of items, payment to creditors, loans repaid or given, rental payment, purchase of assets and interest payments.
Net Cash flow is the sum of cash inflows to an organisation minus the sum of cash outflows over a period of time.
Cash outflows normally take place before cash inflows. Typically a business’s cash outflow will follow these stages:
Purchase of Material = Cash Outflow
Transformation of inputs into outputs = Cash Outflow.
Sale of outputs = Cash inflow
It can be seen that there is tendency for cash to flow out of a business before it flows back in. This means that a typical business might suffer cash flow problems.
Techniques used to forecast the Cash Flow
Previous cash flow forecasts
Consumer research
Study of similar businesses, such as competitors
Research into the level of resources needed
Banks and consultant
Problems in forecasting cash inflows and outflows
Changes in the economy and consumer tastes
Inaccurate market research
Actions of competitors
Why business forecast Cash flow
The main reason for forecasting the cash flow is to:
Identify potential cash-flow problems in advance
It provides a means of controlling expenditure and therefore cash flow.
Guide the firm towards appropriate action by high lighting potential problems
Make
A budget is a financial plan for business, prepared in advance. It is defined by cima as ‘a plan expressed in money’.
Cash flow forecasting is the process of estimating cash inflows and cash outflows over a period of time, usually for a period of 1 year.
Cash Budget is the process of estimating cash inflows and cash outflows over a period of time, usually prepared monthly.
Cash flows is the amount of money flowing into and out of a business over a period of time.
Cash inflows are the receipts of cash, typically arising from sales of items, payment of debtors, loan received, rent charged, sale of assets and interest received.
Cash outflows are payment of cash, typically arising from the purchase of items, payment to creditors, loans repaid or given, rental payment, purchase of assets and interest payments.
Net Cash flow is the sum of cash inflows to an organisation minus the sum of cash outflows over a period of time.
Cash outflows normally take place before cash inflows. Typically a business’s cash outflow will follow these stages:
Purchase of Material = Cash Outflow
Transformation of inputs into outputs = Cash Outflow.
Sale of outputs = Cash inflow
It can be seen that there is tendency for cash to flow out of a business before it flows back in. This means that a typical business might suffer cash flow problems.
Techniques used to forecast the Cash Flow
Previous cash flow forecasts
Consumer research
Study of similar businesses, such as competitors
Research into the level of resources needed
Banks and consultant
Problems in forecasting cash inflows and outflows
Changes in the economy and consumer tastes
Inaccurate market research
Actions of competitors
Why business forecast Cash flow
The main reason for forecasting the cash flow is to:
Identify potential cash-flow problems in advance
It provides a means of controlling expenditure and therefore cash flow.
Guide the firm towards appropriate action by high lighting potential problems
Make