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Cash Budget: Financial Planning & Budgeting

The cash budget document outlines the four major sections of a cash budget: receipts, disbursements, cash excess/deficiency, and financing. The receipts section lists expected cash inflows from sales. The disbursements section lists planned cash payments for materials, labor, overhead, and other expenses. The cash excess/deficiency section computes beginning cash balance plus receipts minus disbursements to determine if there is excess cash that can be invested or a deficiency requiring financing. The financing section addresses borrowing needs if there is a cash deficiency.

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192 views5 pages

Cash Budget: Financial Planning & Budgeting

The cash budget document outlines the four major sections of a cash budget: receipts, disbursements, cash excess/deficiency, and financing. The receipts section lists expected cash inflows from sales. The disbursements section lists planned cash payments for materials, labor, overhead, and other expenses. The cash excess/deficiency section computes beginning cash balance plus receipts minus disbursements to determine if there is excess cash that can be invested or a deficiency requiring financing. The financing section addresses borrowing needs if there is a cash deficiency.

Uploaded by

5555-899341
Copyright
© © All Rights Reserved
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Cash Budget

Financial Planning & Budgeting


1

The cash budget is composed of four major sections:

● ○ receipts section
○ disbursements section
● ○ cash excess or deficiency section
○ financing section

The receipts section lists all of the cash inflows, except from financing,
expected during the budget period. Generally, the major source of receipts is
from sales. The disbursements section summarizes all cash payments that
are planned for the budget period. These payments include raw materials
purchases, direct labor payments, manufacturing overhead costs, and so on,
as contained in their respective budgets. In addition, other cash
disbursements such as equipment purchases and dividends are listed.
2

The cash excess or deficiency section is computed as


follows:

Beginning cash balance XXXX

Add cash receipts XXXX

Total cash available XXXX

Less cash disbursements XXXX

Excess (deficiency) of cash available over disbursements XXXX

If a cash deficiency exists during any budget period or if there is a cash


excess during any budget period that is less than the minimum required cash
balance, the company will need to borrow money. On the other hand, if there is a
cash excess during any budget period that is greater than the minimum required
cash balance, the company can invest the excess funds or repay principal and
interest to lenders.
3

Preparing a budgeted income statement

The budgeted income statement is constructed using data from the


sales budget, the ending finished goods inventory budget, the manufacturing
overhead budget, the selling and administrative budget, and the cash budget.

Preparing a budgeted balance sheet

The budgeted balance sheet is constructed using data from virtually all
other parts of the master budget.
4

Cost Behavior

It defines how a cost works or changes as the amount of cost driver changes.

Types of costs as to behavior:

Ø Fixed Cost – in total: constant within the relevant range as activity output
changes; per unit: changes as activity level changes

Ø Variable Cost – in total: varies in direct proportion to changes in activity


output; per unit: remains constant

Ø Mixed Cost – has both fixed and variable components.

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