Presented By:Jagannath DasEastern Institute of management

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

Done on a shorter time frame than other statements. (i.e., month-by-month or even week-by week).

Why is a cash budget important?

Allows companies to predict possible cash shortages and take corrective action before a crisis occurs. Allows companies to see if large sums of excess cash are lying idle—could be put to better use.

Assists with the identification of when commitments are due.

Reveals periods of excess funds

Reveals weaknesses in business’s debt collection policy

Adjustments for seasonal fluctuations can be made

Budgets are a form of control

Budget reveals periods when shortages of funds may occur

Preparation of cash budget.Receipts and payments method: under this

method all the cash receipts and payments expected during the budget period is considered. However care must be taken to ensure that cash adjustments and accruals are not shown in cash budget.

Cash InflowsSales and other cash incomeNew loans receivedSales of capital assetsNonfarm incomeBeginning cash on hand

Cash OutflowsCash expensesPrincipal paymentsPurchase of capital assetsNonfarm expensesEnding cash on hand

Depreciation

Opportunity costs

Any other non-cash income or expense

Do not include:

From the following data prepare cash budget for the 3months commencing 1st june, 1996, when the bank balance was Rs.100000.

Month sales purchases wages production exp. adm.exp (Rs) (Rs) (Rs) (Rs) (Rs)April 80000 41000 5600 3900 10000May 76500 40500 5400 4200 14000June 78500 38500 5400 5100 15000July 90000 37000 4800 5100 17000August 95000 35000 4700 6000 13000

There is two month credit period allowed to customers and receivedfrom suppliers. Wages production expenses and administrationexpenses are payable in the following months.

Cash budget from june to august 1996

June July August

Opening balance 100000 115400 125900Add:receipts:Collection from debtors 80000 76500 78500 180000 191900 204400Less:payments

Paid to creditors 41000 40500 38500Wages 5400 5400 4800Production exp. 4200 5100 5100Administration exp. 14000 15000 17000 Closing balance 115400 125900 139000