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ShraddhaShraddha ChauhanChauhan 4646

KalyaniKalyani Shah 14Shah 14

PurviPurvi Shah 39Shah 39

JalpaJalpa BhuvirBhuvir 1111

Group Members:

Project Guide:

Mr. Manish sirMr. Manish sir

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TOPIC

CASH

BUDGET

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AGENDA

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MEANING OFCASH BUDGET

An estimation of the cash

inflows and outflows for abusiness or individual for a

specific period of time.

Cash budgets are often used to assess whether the

entity has sufficient cash to fulfill regularoperations and the cash budget.

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y One of the principal methods of forecasting the

financial needs of a business is the cash budget, whichpredicts the combined effects of planned operations onthe firms cash flow. A positive net cash flow meansthat the firm will have surplus funds to invest. But if

the cash budget indicates that an increase in thevolume of operations will lead to a negative cash flow,additional financing will be required. The cash budgetthus indicates the amount of funds that will be neededor available month by month or even week by week.

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y The cash budget is an accounting device that is used toeffectively monitor and manage the immediate cashflow of a home or business budget. Many peoplechoose to employ a cash budget approach as a quick

and easy way to monitor the financial condition of thehousehold or a small business on a daily, weekly, ormonthly basis. Generally, cash budgets are used tomanage short-term cash flow by creating an organized

means of keeping up with cash receipts and balancingthem against cash disbursements during theaccounting period

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Importance of cash budget1. Helpful in Planning

2. Forecasting the Future needs

3. Maintenance of cash Balance4. Controlling Cash Expenditure

5. Evaluation of Performance

6. Testing the Influence of proposed ExpansionProgramme

7. Sound Dividend Policy

8. Basis of Long-term Planning and Co-ordination

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Adv. Of cash budget

1. Planned use of cash

2. Provision for Capital Expenditure

3. Investment of Surplus Funds

4. Dividend Policy5. Profitable Use of Cash

6. Timely Payment of Debts

7. Arrangement for Obtaining Funds8. Useful for Control

9. Helps Co-ordination

10. Easy to Obtain Funds

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Why Prepare A Cash Budget?

y A cash budget is important for a variety of reasons. For one, itallows you to make management decisions regarding your cashposition (or cash reserve). Without the type of monitoringimposed by the budgeting process, you may be unaware of thecycle of cash through your business. At the end of a year or abusiness cycle, a series of monthly cash budgets will show you

just how much cash is coming into your company and the way itis being used. Seasonal f luctuations will be made clear.

y

A cash budget also allows you to evaluate and plan for yourcapital needs. The cash budget will help you assess whether thereare periods during your operations cycle when you might needshort-term borrowing. It will also help you assess any long-termborrowing needs. Basically, a cash budget is a planning tool formanagement decisions.

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How To Create A Cash Budget ?

y There are three main components necessary for

creating a cash budget. They are:

Time period

Desired cash position

Estimated sales and expenses

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Time Period

y The first decision to make when preparing a cash

budget is to decide the period of time for which yourbudget will apply. That is, are you preparing a budgetfor the next three months, six months, twelve monthsor some other period.

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Cash Position

y The amount of cash wish to keep on hand will dependon the nature of the business, the predictability of

accounts receivable and the probability of fast-happening opportunities that may require you to havea significant reserve of cash.

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Estimated Sales And Expenses

The fundamental concept of a cash budget isestimating all future cash receipts and cash

expenditures that will take place during the timeperiod. The most important estimate you will make,however, is an estimate of sales. Once this is decided,the rest of the cash budget can fall into place.

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cont.

y These are following categories of expected cash

receipts and expected cash payments should beconsidered

y Cash balance

y Expected cash receipts:

y Cash sales

y Collections of accounts receivable

y Other income

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Cont.

y Expected cash expenses:Raw material (inventory)Payroll

y Other direct expenses:

Advertising

Selling expensesAdministrative expensePlant and equipment expendituresOther payments

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Beginning cash balance Jan Feb Mar Total

Cash from operations

Total Available Cash

Less:

Capital expenditures

Interest

DividendsDebt retirement

Other

Total Disbursements

Cash Balance (Deficit)

Add:

Short-term loans

Long-term loans

Capital stock issues

Total Additions

Ending Cash Balance

FORMATOFCASH BUDGET

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Thank you