Cash Budget

Cash budget is a record of the cash inflow and cash outflow over a specific period of time that helps a business or individual to have an idea to estimate whether the company is facing cash surplus or cash shortage. Normally cash budget are used as a guide to show whether the business has sufficient cash for the daily operations or the business is facing insufficient cash which will led to liquidity and eventually unable to operate the business.

In my opinion I agree that that budgeting is a key component in the management for either short or long term planning. It is because it is a very important measurement especially for small businesses. Cash is very important for businesses to run its business as it affects day-to-day function, such as paying salary to the employees. This measurement enable the company to prevent from debts as the management can determine how much credit it can extend to the customers. With the cash budget, the company can also set a certain target on its sales and revenue and limits on the budget expenses they should spend. Frequent checking of the cash budget enables the management to know where the money is being spent. Hence, this can be one of the methods to prevent the employees from excess spending or even spending on unnecessary items.

Cash budget helps the management to points out the cash surplus which allow them to plan if the company can go for investment with the surplus money to gain more profit without possibility to become liquidity. By reading the cash budget, it enables the management to see forecasts the funds and time that will be needed in future. Therefore, it helps the company to plan for raising the funds by searching the most profitable sources at best terms and costs. The cash budget can be also use as a reference for future use, for example it can use to compare the expenditure cost or the sales revenues.