Advantage of Cash Budgeting

Briefly discuss the advantages of preparing Cash Budget.

Cash budget records the future cash receipts and payments of an organisation over a specific period of time. Cash budget were used as a guide to determine if cash balance of an organization is sufficient for the daily operations or if is insufficient which will led to liquidity.

Cash is essentially important for the day-to-day function in an organization. For example ,wages and salaries to employees, rentals, purchases of raw material and so on. Cash budget helps us to record the estimated expenses needed to operate the business in the future. This measurement enable the company to prevent from debts as the management can determine how much credit it can extend to the customers as well as to monitor and limits budget expenses should they spend in the business.

Cash budget help company to point out its cash surplus and deficit. As company may consider to use it cash surplus to make investment to generate more profit without possibility to become liquidity. If is a cash deficit company may make an early arrangement to extend the credit with its debtors and to cut down on expenses . In addition, cash budget also used as a tool to help management to set an achievable target on its sales and revenue.

To conclude ,it is essentially important for company to have a cash budget as a record in their business operation. Not only as reference for the future use , for example to compare the expenditure cost or the sales revenues, it was also use to plan for the future operation of the business.