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Unit 11: Management of Cash

Cash budget represents cash requirements of business during the budget period. Cash budget Notes
can be prepared for either short or for long periods.
1. Cash budgets for short period: Preparation of cash budget month by month would involve
making the following estimates:
(a) As regards receipts:
(i) Receipts from debtors;

(ii) Cash sales; and
(iii) Any other sources of receipt of cash (say, dividend from a subsidiary company).
(b) As regards payments:
(i) Payments to be made for purchases;

(ii) Payments to be made for expenses;
(iii) Payments that are made periodically but not every month;
 Debenture interest;
 Income tax paid in advance

 Sales tax etc.
(iv) Special payments to be made in a particular months, for example dividends to
shareholders, redemption of debentures, repayments of loan, payment for
assets acquired, etc.,
2. Cash budget for long period: Long-range cash forecast often resembles the projected source
and application of funds statement. The following procedures may be adopted to prepare
long-range cash forecasts:
(a) Take the cash at bank and in the beginning of the year;

(b) Add:
(i) Trading profit (before tax) expected to be earned;
(ii) Depreciation and other development expenses incurred to be written off;
(iii) Sale proceeds of assets;

(iv) Proceeds of fresh issue of shares or debentures; and
(c) Reduction in working capital that is current assets (except cash) less current liabilities.
(d) Deduct:
(i) Dividends to be paid

(ii) Cost of assets to be purchased
(iii) Taxes to be paid
(iv) Debentures or shares to be redeemed
(v) Increase in working capital.

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