Page 144 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 7: Budgeting

7.2.5 Cash Budget Notes

Cash budget is nothing but an estimation of cash receipts and cash payments for specifi ed period.
It is prepared by the head of the accounts department i.e. chief accounts offi cer.
The utility of the cash budget is as follows:
1. To meet the revenue and capital expenditures with adequate funds.
2. It should highlight the additional requirement cash whenever the need arises.

3. Keeping of excessive funds available in the business firm would not fetch any return to the

enterprise but this estimate of future cash needs and resources will guide the firm to plan
for an effective investment out of the surplus funds estimated; enhances the wealth of the
investors through proper investment planning out of the future funds available
Cash budget can be prepared in three different ways:

1. Receipts and payments method
2. Adjusted profit and loss account

3. Balance Sheet Method

Cash receipts can be classified into various categories:
Figure 7.3: Classification of Cash Receipts

Cash Receipt

Sale Debtors Bills receivable Dividends Sale of Investments
Other Incomes

Cash payments are as follows:
Figure 7.4: Classification of Cash Payments

Cash Payments

Purchase of Assets Materials bought Salary paid

Rent paid Other payments

Example: From the estimates of income and expenditure, prepare cash budget for the
months from April to June.
Month Sales Purchases Wages Offi ce Exp. Selling Exp.
(`) (`) (`) (`) (`)
Feb. 1,20,000 80,000 8,000 5,000 3,600
Mar. 1,24,000 76,000 8,400 5,600 4,000
Apr. 1,30,000 78,000 8,800 5,400 4,400
May 1,22,000 72,000 9,000 5,600 4,200
June 1,20,000 76,000 9,000 5,200 3,800

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