PREPARATION OF CASH BUDGET

sunandaC

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PREPARATION OF CASH BUDGET

Usually the responsibility of preparing the cash budget lies on the treasurer or other financial executive. Cash budget has to be prepared by estimating cash receipts & cash payments.

 Estimating cash receipts
 Cash is received on the following accounts
 Cash sales
 Collection from debtors
 Interest/dividend on investment
 Sale of assets etc.,
 Loans, Advances, Deposits etc.

The person who is responsible for the budget has to estimate how much cash is likely to be received during the budget period on the above accounts.

ESTIMATING CASH PAYMENTS

Cash Payments is made on the following accounts:

 Payments for purchases
 Payments for overheads
 Purchase of assets
 Payment for creditors
 Payment for taxes
 Payment for dividend/Interest etc.
 Re-Payment of loans/deposits/advances etc
 This Budget is based on several factors such as :
 Several functional budgets particularly sales, purchases etc.
 Credit terms on sales, purchases & expenses.

Concept of float

In absolutely non-technical language float indicates with deference between the bank balance as per the bank book and as per the bank pass book/bank statement. This float arises mainly due to the fact that there is always a time gap between the time a cheque is written by the company and the time when it is presented to the bank for payment or there is a time gap between the time when a cheque is deposited by the company in the bank and the time when the credit is actually given bye the bank to the company. This time gap may arise due to various reasons.

(a)Time required for receiving the cheque from the customer through the post office. This is called postal float.
(b)Time required by the company to process the received cheque and deposit the same in the bank .This is called deposit float.
(c)Time required by the banker of the company to collect the payment from the customer’s bank. This is called bank float
 
First get to know about what is cash budget and then if you have any problem please let me know.

According to Investopedia, An estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities.
 
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