Chapter 20, Problem 1CC

Summary Introduction

Cash budget: Cash budget is a forecast of the future requirements of cash by the firm. It is the estimation of how the cash will come in and go out of the business for a given period of time. So, by this budget, estimation can be made about how much cash is in the system and how much cash is needed in the future by the firm.

To Explain: Forecast of the firm’s future cash requirements.

Answer to Problem 1CC

The forecast of the firm’s future requirements is made by preparing a budget, which is called as cash budget.

Explanation of Solution

• The cash budget is a statement which predicts the amount of cash comes and goes in a business for a specific period of time. This budget is basically prepared for quarterly or monthly basis and this is done to find where the cash shorts.
• By the help of this budget, the cash shortfall can be predicted and so the management prepares itself to cover the cash shortfall through external financing. The preparation of this budget helps the business to manage any cash problems that can arise in future beforehand.

Conclusion

Thus, the forecast of the firm’s future requirements is made by preparing a cash budget.