Business Finance
Importance of the Cash Budget

Question Description

What is the purpose of a cash budget? What is being forecasted and how does the cash budget differ from the forecast of the income statement

Final Answer

A cash budget details a company's cash inflow and outflow during a specified budget period, such as a month, quarter or year. Its primary purpose is to provide the status of the company’s cash position at any point of time. This helps the company make critical decisions such as creating cash reserves to make arrangements for projected shortages and using excess funds prudently. Additionally, the cash budget helps in prioritizing payments in the budget period. It also helps in analyzing budget-versus-actual variances in cash inflow and outflow.

Cash forecast is the estimate of the timing and amounts of cash inflows and outflows over a specific period (usually one year). A cash flow forecast shows if a firm needs to borrow, how much, when, and how it will repay the loan. Also known as cash flow budget or cash flow projection.

http://smallbusiness.chron.com/primary-purpose-cash-budget-64572.html


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