Cash Budget

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Cash Control and Cash Budgets Budgeted Income Statement and Budgeted Balance Sheet What is a Budgeted Income Statement? An estimate of expected revenues and expenses for a business, over a specific time period i.e. 1 year, 1 month or a specific event. What is a Budgeted Balance Sheet? An estimate of a business 's financial position (assets, liabilities and owners equity) which can be produced for both the start and end of a period of time (i.e. a year) or for a special event when preparing a business plan. What is a Cash Budget? [pic] A report of the expected changes in the cash position of a business over a period of time (i.e. a year) or over a special event. It includes an estimate of expected cash receipts (cash…show more content…
• Holding an Optimum inventory level to avoid excessive holding costs (too much capital invested in inventory) or lost sales (stock outs due to too little capital invested in inventory). • Investment of idle surplus cash in short term investments to maximise returns. • Planning of capital expenditure (i.e. conversion of a room in a hotel into a snack bar) to match the timing of the cash inflows from the assets with the timing of the cash outflows costs of servicing their purchase. Example 1 Estimated Receipts and Estimated Payments Ryugyong Hotel, North Korea [pic] The following details outline the expected cash transactions of Ryugyong Hotel during the three months ending 30th June 2008. [pic] [pic] Required: Prepare a Cash Budget for the three months ended 30 June 2005 and comment on the expected cash position of Ryugyong Hotel. Schedule of Receipts from Ryugyong Hotel, [pic] [pic] Ryugyong Hotel, Cash Budget [pic] Decisions taken in advance to avoid decline in liquidity Possible Actions to Reduce Payments and/or Slow Down the Rate of payments include: - Owners decrease personal cash drawings (take less cash out of the business) - Delay or cancel further investment in non-current assets (make do with old) - Lease assets rather than purchase assets, if lease payments are less than loan servicing outlays (principal + interest) on purchases of non-current assets - Maximise credit terms
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