Horti-Business Management (2+0)

Cash Budgeting

• A Cash Budget is used to determine anticipated cash inflows and outflows so that the business maintains the optimum level of cash (cash on hand being a non-earning asset). It also provides information on whether or not additional financing is required to address cash shortfalls.
  
• The first step in preparing a Cash Budget is to list down all transactions having cash flow implications. For example, among the items included under Cash Receipts are: collection of accounts receivable, cash sales, and proceeds of borrowings. Cash Disbursements, on the other hand, may include cash operating expenses, raw material purchases, equipment and other asset purchases, and repayments on bank loans (including interest).
  
• From this exercise, a Net Cash Balance is derived. This is then carried over to the next period (month or quarter, depending on the level of detail of the cash budget) as the beginning cash balance. Some businesses choose to have a pre-determined minimum required cash balance which they maintain at all times.