What is a cash budget? What are the different methods to prepare it?
Cash budget is the budget which is prepared under the finance budget. It is an estimation of the expected cash receipts and cash payments during the budget period. By preparing cash budget it becomes possible for the organisation to predict whether at any point of time there will be excess or shortage of cash. Two main points should be remembered before preparing cash budget: Time period of the cash budget and the items to be included in the cash budget.
Following methods are used to prepare cash budget:
Receipts and payments method: This method is useful for short term estimations. Under this method items should be categorised in two ways Operating Cash Flows and Non Operating Cash Flows
Balance Sheet method: This method is useful for long term estimations.
Adjusted Profits/Losses Method: This method is useful for long term estimations.