Cash Budgets

What is a cash budget?

• Something that shows the current cash balance, the expected future cash inflows and outflows and the expected cash balance at the end of a budget period

• Something that shows the planning, coordinating and controlling of the business

• Something that shows the ability to turn assets into cash as well as being able to pay for short and long term commitments

• Something that shows when a business has poor liquidity

What does a budget help a business to do?

• Plan, coordinate and control all activity areas of the business

• Turn assets into cash

• Be able to pay for short and long term commitments

• Show when a business has poor liquidity

What is liquidity?

• The ability to turn assets into cash

• Struggling to pay off immediate debts and payroll

• Incurring extra interest charges

• When a business fails

Why is it important for a business to have good liquidity?

• So it doesn't struggle to pay off its immediate debts

• So it doesn't incur extra interest charges

• So it doesn't fail as a whole

• All of the above

How can a business improve its liquidity?

• Making sure their accounts receivable pay on time

• Selling most things on credit

• Keeping all assets regardless of their productivity

• Increasing their expenses

How do businesses assess liquidity?

• The working capital amount

• Current ratio

• Quick asset ration

• Income statement and balance sheet

What is a limitation of a budget?

• It is only an estimate based on past figures so may not be accurate

• They keep choices flexible

• People sometimes underestimate

• Results are quick

What are positive transactions called on a cash budget?

• Receipts

• Income

• Assets

• Equity

What are negative transactions called on a cash budget?

• Payments

• Expenses

• Liabilities

• Equity

Classify in terms of a cash budget: Capital

• Receipt

• Payment

• Asset

• Liability