From the course: Accounting Foundations: Managerial Accounting
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Having a cash budget
From the course: Accounting Foundations: Managerial Accounting
Having a cash budget
- The cash budget, which shows expected cash receipts and disbursements during a period, is impacted by all of the proceeding budgets and the master budget. A detailed cash budget will point out when a company has excess cash to invest and when it has to borrow funds. This allows a firm to earn maximum interest on excess funds and to avoid the costs of unnecessary borrowing. Typically, a cash budget is divided into three sections: cash receipts, cash payments, and financing. The cash receipts section summarizes all cash expected to flow into the business during the budget period. Because many companies generally extend credit to their customers, a lot of their sales are originally recorded as accounts receivable. The collection of accounts receivable is a major source of cash, and it's timing is an important consideration in preparing a cash budget. Over time, a company can get very good at forecasting its cash receipts.…
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