Week 2 Discussion 2: Cash Budgeting
Discuss the cash-planning process and the preparation, evaluation and use of the cash budget. Your discussion can include a cash budget for both a business and yourself, personally.
Cash Budgeting-Sample Solution
Cash planning involves managing cash inflows and outflows to help keep within the budgeted expenditure. During the cash planning process, Birt et al. (2020) observe that it estimates the cash flow plans and incorporates cash receipts, disbursements, net changes in cash, and new cash inflows the company may require. When preparing a cash budget, financial managers first ascertain the opening cash balance (Birt et al., 2020). It includes the total cash that a company has at the beginning of a budget period. Second, estimating cash inflows for the budgeted period, such as raising loans and cash sales. Third, scheduled disbursements of cash payments are determined. It includes the cost of salaries and other operating overhead expenses. The last step is ascertaining the closing cash balance. It is done by deducting the expected cash outflows like wages or purchases from the cash receipt total and opening balance. Examples of business and personal cash budgets are illustrated in the appendix.(Cash Budgeting Sample Essay)
Generally, companies prepare the cash budget based on receipts and payments (Birt et al., 2020). In this case, they can evaluate it by comparing the data obtained during a specific period with the budgeted figures. It provides insights into the company’s performance based on the same period’s budget estimates. Generally, Birt et al. (2020) observe that a cash budget is used for financial planning within a company. It analyzes potential cash deficits or surplus, making it easy for a company to avert future investment crises. Companies also use it to build their brand value. It helps ensure timely payment of suppliers and creditors, which is essential in building a reputation. Moreover, it enables companies to determine their cash position and establish plans for investing surplus cash or borrowing to supplement a deficit (Birt et al., 2020). Lastly, it helps in controlling cash expenditure. Company departments must comply with budgeted expenditure by operating with the allocated resources.(Cash Budgeting Sample Essay)
Reference
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J., & Bond, D. (2020). Accounting: Business reporting for decision making. (7th ed., pp. 336-352). Milton, QLD: John Wiley and Sons Australia, Ltd.
Appendices
Table 1: Cash Budget for Steel Manufacturing Company (2021)(Cash Budgeting Sample Essay)
| August ($) | September ($) | ||
| Opening Balance | 60,000 | 68,000 | |
| Cash inflows | 215,000 | 276,000 | |
| Total Cash Available | 275,000 | 344,000 | |
| Cash Disbursements | |||
| Materials | 85, 000 | 92,000 | |
| Labor | 23, 000 | 24,000 | |
| Manufacturing overhead | 65,000 | 51,000 | |
| Sales Administration | 78, 000 | 66,000 | |
| Dividend | 42, 000 | 2,000 | |
| Total Disbursements | 293, 000 | 235,000 | |
| Excess (Deficit) | (18,000) | 109,000 | |
| Financing: | |||
| Borrowing | 86,000 | ||
| Repayment | 86,000 | ||
| Interest (16% VAT) | 13,760 | ||
| Total Financing | 86,000 | 99,760 | |
| Closing Cash Balance | 68,000 | 9,240 | |
Table 2: Personal Cash Budget(Cash Budgeting Sample Essay)
| Income | Cash Budget ($) (June, 2022) |
| Salary | 47,000 |
| Part time Jobs | 17,000 |
| Others | 3,000 |
| Total Income | 67,000 |
| Expenses | |
| Electricity | 4,000 |
| Water | 4,000 |
| Rent | 9,000 |
| Food | 22,000 |
| Phone | 2,000 |
| Property Taxes | 2,500 |
| Insurance | 4,500 |
| Clothing | 5,000 |
| Transport | 2,000 |
| Total Expenses | 55,000 |
| Closing Cash Balance | 12,000 |
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