Answered: udget is usually thought of as a means…

udget is usually thought of as a means of planning for future financing needs. Why would a cash budget also be important for a firm that has excess cash on hand? Explai

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter3: Financial Statements, Tools, And Budgets

Section3.5: Reaching Your Goals Through Budgeting:

Problem 1CC

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Concept explainers

Cash budget

A cash budget is an estimate of an organization's cash flow for the future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future. If cash receipts are insufficient to cover future expenses, an organization may plan to obtain funds from other sources. After estimating the sales, purchase, and capital expenditure budgets for the year, management develops a cash budget. These budgets are created to ensure that an organization's cash flow is managed. It is important to note that only cash transactions are recorded when actual cash enters and exits an organization.

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A cash budget is usually thought of as a means of planning for future financing needs. Why would a cash budget also be important for a firm that has excess cash on hand? Explain.

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