Preparation of Cash Budget



A complete system of budgetary control makes the construction of cash budget easy. It is one of the functional budgets which is prepared along with other budgets. There are three recognized methods of preparing a cash budget.


(a)  The Receipts and Payment Method;

(b)  The Adjusted Profit and Loss Method; and

(c)  The Balance Sheet Method.


Steps to be Adopted


Cash Receipts Forecast; Cash receipts from sales, debtors, income from sales of assets and investments and probable borrowings should be forecast and brought into cash budget. Any lag in payment by debtors or by others shall be considered for ascertaining further cash inflows.


Cash requirements forecast: Total cash outflows are taken out from operating budgets for the elements of cost, and from capital expenditure budget for the purchase of fixed assets. Adjustments are to be made for any lag in payments.


Care must be taken to ensure that outstanding or accruals are excluded from the cash budget since this method is based on the concept of actual cash flows.

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