Purposes of a Cash Budget

Question 1

What is the purpose of a cash budget?

Answer 1

To predict the future movements of cash received and paid and change in bank balance over a period of time for the (insert name of the Business here).

Question 2

What are the components of a cash budget?

Answer 2

o	Cash Receipts for period
o	Cash Payments for period
o	Net increase/decrease in cash for period
o	Opening bank balance
o	Closing bank balance

Question 3

What is a limitation of a cash budget?

Answer 3

Does not show any planned credit transactions. E.g. credit sales, credit purchases
Does not include estimated non-cash items. E.g. bad debts, depreciation

Does not show estimated owners drawings of goods from the firm

The figures are estimates - not based on past financial and non financial information, they may not free from bias by those preparing them.

The future is not able to be predicted with complete confidence as unexpected changes may occur e.g. Natural Disasters. This could effect the accuracy of the figures estimated