Question

"The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year." Do you agree? Explain.

Answer 1

Cash budgets are typically prepared monthly with quarterly or semi-annual budget periods. This is an estimate of your monthly cash flow to reflect your account balance at the end of each month.

The main purpose is cash management to balance income and payments in order to have the surplus needed at the end of the month. Budgeting helps you plan how to spend your money. This ensures that you always have enough money for what you need and what is important to you.

If it turns out that your income for a particular month is not covered by your disposable income, the Cash budget will tell you with a negative number that you need to arrange for additional external funding.

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