THE CASH BUDGET (PART 1)
FOG Accountancy Tutorials・20 minutes read
Cash budget in management accounting focuses solely on cash transactions for a specific period, including inflows and outflows to determine net cash flows and closing balances for each month. Challenges may arise in calculating cash received from debtors and paid to creditors, but two formats of cash budgeting yield the same closing balances by either calculating at the beginning or end of the period.
Insights
- Cash budget is a forward-looking financial plan that focuses exclusively on cash transactions, excluding non-cash items like depreciation and estimates.
- Two common methods for presenting a cash budget involve either starting with opening balances or detailing cash inflows and outflows, with the closing balance of one month becoming the opening balance for the next, ensuring continuity and accuracy in calculations.
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Recent questions
What is the focus of cash budgeting?
Cash budgeting focuses on cash transactions only.
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Summary
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Managing Cash Flow with Budgeting Techniques
- Cash budget is a crucial aspect of management accounting, focusing on cash transactions only.
- Cash budget is a future-oriented forecast of cash inflows and outflows, unlike the historical cash book.
- Cash budget excludes non-cash transactions and estimates, focusing solely on cash transactions.
- Two ways to present a cash budget: starting with opening balances or listing cash inflows and outflows.
- Cash budget is prepared for a specific period, often monthly, with expected cash transactions.
- Cash inflows include cash sales, cash receipts from debtors, and other expected inflows like dividends.
- Cash outflows consist of cash purchases, cash paid to creditors, and other expected payments like wages and rents.
- Depreciation and non-cash items are not included in the cash budget, focusing solely on cash transactions.
- Balancing the cash budget involves subtracting total outflows from inflows to determine net cash flows.
- Opening balance is added to net cash flows to calculate closing cash balance for each month, with the closing balance of one month becoming the opening balance for the next.
16:30
"Transitioning Balances: Cash Budgeting Methods Explained"
- Closing balance for January becomes the opening balance for February in the cash budget process.
- The closing balance for one month transitions into the opening balance for the subsequent month, ensuring accuracy in calculations.
- Challenges may arise in determining cash received from debtors and cash paid to creditors due to varying instructions and conditions provided in the questions.
- Two formats exist for cash budgeting: one where closing balances are calculated at the end and another where they are determined at the beginning, with both methods yielding the same closing balances.
