Prepare a Cash Budget
Prepare a Cash Budget
Just as you would not purchase new furniture
for your home without enough cash, or at least a solid plan to cover a personal
loan from your bank, your business needs the same careful handling of its expenditures.
All businesses, no matter what type or size, need to properly develop a plan
for their expected cash intake and spending. This plan is commonly known as
a cash budget, and it can be prepared quarterly or annually.
I. Purposes of Cash Budgeting
Properly preparing your cash budget
will show how cash flows in and out of your business. Also, it may then be used
in planning your short-term credit needs. In today's financial world, you are
required by most financial institutions to prepare cash budgets before making
capital expenditures for new assets as well as for expenditures associated with
any planned expansion. The cash budget determines your future ability to pay
debts as well as expenses. For example, preliminary budget estimates may reveal
that your disbursements are lumped together and that, with more careful planning,
you can spread your payments to creditors more evenly throughout the entire
year. As a result, less bank credit will be needed and interest costs will be
lower. Banks and other credit-granting institutions are more inclined to grant
you loans under favorable terms if your loan request is supported by a methodical
cash plan. Similarly, businesses that operate on a casual day-to-day basis are
more likely to borrow funds at inopportune times and in excessive amounts. Without
planning, there is no certainty that you will be able to repay your loans on
schedule. However, once you've carefully mapped out a cash budget, you will
be able to compare it to the actual cash inflows and outflows of your business.
You will find that this comparison will go a long way in assisting you during
future cash budget preparation. Also, a monthly cash budget helps pinpoint estimated
cash balances at the end of each month which may foresee short-term cash shortfalls.
II. Consistent Budgets
Cash budgeting is a continuous process
that can be checked for consistency and accuracy by comparing budgeted amounts
with amounts that can be expected from using typical ratios or financial statement
relationships. For example, your treasurer will estimate the payments made to
your suppliers of merchandise or materials, the payments to employees for wages
and salaries, and the other payments that you are obligated to make. These payments
can be scheduled by dates so that all discounts will be taken, and so that no
obligation will be overlooked when it comes due. Cash collections from customers
can also be estimated and scheduled by dates along with other expected cash
receipts. With careful cash planning, you should be able to maintain a sufficient
cash balance for your needs and not put yourself in the position of holding
excessive balances of nonproductive cash. In the normal course of operations
in a merchandising business, for example, merchandise is purchased and sold
to customers who eventually pay for the merchandise sold to them. Usually there
is a time lag in business operations. It may be necessary to pay the suppliers
for merchandise before the merchandise is sold to the customers. Before and
during a busy selling season the demand for cash may be higher than the inflow
of cash from operations. In this case it may be necessary to arrange short-term
loans. When the selling season is over, cash collections from customers will
be relatively large and the loans can be paid off.
Example of a Cash Budget
The following is an example of a cash
budget for the 90 days provided below for the XYZ Company.
CASH BUDGET FOR 90 DAYS
cash balance
&&&&Estimated collections on accounts receivable
&&&&Estimated cash sales
$1,320,000
&&&&Estimated payments on accounts payable
&&&&Estimated cash expenses
&&&&Contractual payments on long-term debt
&&&&Quarterly dividend
$1,150,000
ending cash balance
Analysis of Example Cash Budget
Analysis of the financial statements
of the XYZ Company shows that the accounts receivable remain at about $500,000
that is, there is no seasonal fluctuation in sales. The
accounts receivable turns over six times a year, or once every 60 days. The
inventory throughout the year remains at about $800,000 and turns over every
90 days. The accounts payable remains at about $400,000 and turns over eight
times a year, about once every 45 days. With an accounts receivable collection
period of 60 days and an average balance outstanding of $500,000, it appears
that $750,000 is the amount that should be collected on the receivables in 90
days. Cash sales should amount to about $250,000 if the inventory of $800,000
valued at cost turns over once in 90 days and if the average markup is about
$200,000. Therefore, if an inventory of $1,000,000 at retail turns over once
every 90 days and $750,000 flows through accounts receivable, then approximately
$250,000 must be sold on a cash basis. Cash payments for expenses are estimated
to be $150,000 in the next 90 days. This figure can be roughly checked by referring
to the expenses on the income statement. A rough measure of the cash expenses
can usually be obtained by using the operating expenses less any non-cash expenses
such as depreciation. For example, if there is no seasonal factor, the total
amount divided by four should be an approximate check on the amount budgeted
for the next 90 days.
III. Checking the Reasonableness of the Budget
If it appears that the budgeted amounts
will differ substantially from ratios and relationships taken from past statements,
then further attention should be given to the budget. For instance, some factors
may have been overlooked in budgeting, or past statement relationships may no
longer be applicable, due to unrecognized changes.
IV. Sales and Other Potential Cash Sources
Normally, sales activity is expected
to produce the bulk of the cash receipts. If sales are made on a credit basis,
accounts receivable will eventually be translated into cash as the customers
pay their accounts. The time required to collect outstanding accounts will have
to be estimated, and provisions must be made for discounts, returns, allowances
granted, and uncollectable accounts. In addition to sales, there are many other
potential cash sources. These sources must be examined for possible additions
to cash when setting up a total cash receipts budget for the year. Dividends
and interest may be collected on investments or cash may be received from an
incidental operation (i.e., rent or sale of scrap material). Ordinarily, cash
will be realized from the sale of investments in stocks and bonds and from the
sale of machinery or other assets not incurred in the normal course of trade.
As a result of cash flow, stock may be issued or debt may be incurred with cash
flowing. The various cost budgets, plans for capital acquisitions, commitments
for the discharge of debt, and plans for dividend payments are brought together
in a cash disbursements budget. If possible, payments will be scheduled at convenient
times, when cash balances are expected to be sufficiently high. Frequently,
the demand for cash is not spread evenly throughout the year. Several large
payments may become due in one particular month. If cash receipts in that month
are not expected to be sufficient, the company will either plan to hold back
cash for these payments or will borrow. It is unlikely that disbursements will
be made in every instance when costs are incurred or when materials and services
are used. Advertising, insurance and rent, for example, are often paid in advance
with the cost being absorbed against future operations. A debt of cash disbursements
is made by scheduling payments required for materials, labor, other operating
costs, dividends, debt service, and so forth. Budgeted cash receipts and disbursements
are brought together to form a total cash budget. From this summary of estimated
cash flow, it is possible to anticipate future cash balances. In some months,
receipts may not be large enough to cover disbursements. If this happens, the
cash balance will have to be reduced. If the outflow of cash is too great, plans
will have to be made to borrow funds. In other months, when receipts are greater
than disbursements, loans can be repaid and cash balances can be built up.
V. Reserve
Financial plans are drawn up so that
a minimum balance of cash will be available at all times. The amount to be held
will depend on estimated future cash flows and the financial policy adopted.
In general, the cash balance should be large enough to enable the company to
meet its payrolls and pay its operating costs for the next month, with some
allowance made for contingencies and miscalculations in planning. By holding
adequate cash balances, management can cope with small adversities and will
not be forced to borrow under unfavorable conditions. If trouble strikes, there
will be a reserve to draw upon. While the reserve is being used, management
can make alternate plans and can secure additional cash from other sources to
meet future needs. Opinions differ as to what amount of cash should be held
in reserve. Some companies maintain fairly substantial cash balances as well
as a secondary reserve that consists of investments that can easily be converted
into cash. Other companies prefer to operate with small cash reserves and when
cash is needed depend on a line of credit which is established at a bank. Cash
up to a certain limit may be borrowed when needed and arrangements are made
for eventual repayment.
VI. Sample Cash Budget
(You can use the interactive table provided to create a cash budget for your
VII. Resources
Peter Atrill and Eddie McLaney, &Accounting
and Finance for Non-Specialists& (Prentice Hall 1997)
Leopold Bernstein and John Wild, &Analysis
of Financial Statements& (McGraw-Hill 2000)
Daniel L. Jensen, &Advanced
Accounting& (McGraw-Hill College Publishing 1997)
Martin Mellman, et. al, &Accounting for
Effective Decision Making& (Irwin Professional Press, 1994)
Eric Press, &Analyzing Financial
Statements& (Lebahar-Friedman, 1999)
Gerald I. White, &The Analysis
and Use of Financial Statements& (John Wiley & Sons, 1997)
<font size="2" face="ArialCash Budget是什么预算的意思？_百度知道
Cash Budget是什么预算的意思？
//zhidao同学你好！ ，在这里祝大家好好考试，取得好成绩.com/c/gaodunzhidao" target="_blank">高顿企业知道; 马上就要2015年下半年CMA资格考试了。&/c/gaodunzhidao" href="http！ Cash Budget是现金预算是 对未来某个时期中不同时间点上现金收入和支出的金额及时间以及期末库存现金的估算。高顿祝您生活愉快://zhidao，更多财会问题欢迎提交给<a title="http。 ，如您满意; 再次感谢您的提问. 希望我的回答能帮助您解决问题.baidu，请采纳为最佳答案哟，每个人都超常发挥，很高兴为您解答
主营：财经证书、财会网课、商学院、财务培训
其他类似问题
为您推荐：
cash的相关知识
等待您来回答
下载知道APP
随时随地咨询
出门在外也不愁Cash Budget 是什么意思啊？_百度知道
Cash Budget 是什么意思啊？
Budget现金预算一项业务现金流入及流出的预测、具有高中以上文化程度://zhidao。高顿祝您生活愉快，很高兴为您解答.com/c/gaodunzhidao" target="_blank">高顿企业知道、中国证监会规定的其他条件。 期货从业报考条件.baidu://zhidao。 希望我的回答能帮助您解决问题.com/c/gaodunzhidao" title="http.baidu、年满 18 周岁； 3 ！ Cash ，更多财会问题欢迎提交给<a href="http。 再次感谢您的提问： 1 ，请采纳为最佳答案哟，如您满意。 考生一定要注意一下看自己是否能报考； 2 ； 4 、具有完全民事行为能力同学你好
主营：财经证书、财会网课、商学院、财务培训
其他类似问题
为您推荐：
其他1条回答
dʒcash budget 现金预算;dʒbʌ ˈɪʃ ˈbʌʃ [英][kæit][美][kæ
nec2501的相关知识
等待您来回答
下载知道APP
随时随地咨询
出门在外也不愁关于会计cash budget的英语翻译_百度知道
关于会计cash budget的英语翻译
Those who owe funds to the organisation are debtors or receivablesThose to whom the organisation owes funds are creditors or receivables这两句话是什么意思
提问者采纳
在公司机构有资金资产的是借方又叫收到方向公司机构借入资金资产的是贷方又叫收入方资产+费用=负债+所有者权益+收入左边的增加写在借方，减少写在贷方右边的增加写在贷方，减少写在借方第一句 公司的资产增加了是借方第二句 所有者权利增加了是贷方
提问者评价
其他类似问题
为您推荐：
其他2条回答
向公司借钱的人，是公司的债务人；借给公司钱的人，是公司的债权人。
大概意思就是二楼说的。向公司借钱的人，是公司的债务人；借给公司钱的人，是公司的债权人。——中华会计
英语翻译的相关知识
等待您来回答
下载知道APP
随时随地咨询
出门在外也不愁cash budget是什么意思
沪江词库精选cash budget是什么意思、英语短语。
中文释义： 现金预算
现金收支两平点
现金出纳簿
现金簿，现金帐簿
现金分红，现金红利
现金出纳备查簿
2016cash budget是什么意思由沪江网提供。
