cash budget

Examples of cash budget in the following topics:

• Components of the Cash Budget

  • The cash budget includes the beginning balance, detail on payments and receipts, and an ending balance.
  • A cash budget is a prediction of future cash receipts and expenditures for a particular time period, usually in the near future.
  • The cash flow budget helps the business determine when its income will be sufficient to cover its expenses and when the company will need to seek outside financing.
  • Cash receipts from customers - Collecting the accounts receivable.
  • One of the assets listed is cash, which factors into the overall budget.

• The Forecast Budget

  • The forecast budget will project what cash flows will be needed for each organizational process, and how those cash flows will be utilized over a fixed period of time.
  • There are a number of ways to approach financial forecasting for a cash budget.
  • A cash budget is all about liquidity, and therefore forecasting what available liquidity will be required over a given period is the primary input for forecasting budgets.
  • At its simplest, cash flow forecasting and budgeting can be computed directly based off of fixed information over a short time frame.
  • A third option for projecting cash budgets is accrual reversal.

• Accounting Flows and Cash Flows

  • Capital budgeting requires a thorough understanding of cash flow and accounting principles, particularly as they pertain to valuing processes and investments.
  • A cash flow is one element of accounting flows, and particularly important to understanding capital budgeting.
  • A cash flow describes the transmission of payments and returns internally and/or externally as a byproduct of operations over time.
  • Conducting cash flow analyses on current or potential projects and investments is a critical aspect of capital budgeting, and determines the profitability, cost of capital, and/or expected rate of return on a given project, organizational operation or investment.
  • Cash flows will also underline overall profitability including, but not limited to, net income.

• The Budgeting Process

  • However, Congress is the body required by law to pass a budget annually and to submit the budget passed by both houses to the President for signature.
  • Several government agencies provide budget data and analysis.
  • These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U.S.
  • During FY 2012, the federal government spent $3.54 trillion on a budget or cash basis, down $60 billion or 1.7% vs.
  • The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30.

• Calculating the Payback Period

  • Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment.
  • Start by calculating Net Cash Flow for each year: Net Cash Flow Year 1 = Cash Inflow Year 1 - Cash Outflow Year 1.
  • Then Cumulative Cash Flow = (Net Cash Flow Year 1 + Net Cash Flow Year 2 + Net Cash Flow Year 3 ... etc.)
  • The modified payback period is calculated as the moment in which the cumulative positive cash flow exceeds the total cash outflow.
  • The modified payback period is in year 5, since the cumulative positive cash flows (17000) exceeds the total cash outflows (12000) in year 5.

• The Election Year Budget

  • The Budget of the United States Government often begins as the President's proposal to the U.S.
  • However, Congress is the body required by law to pass a budget annually and to submit the budget passed by both houses to the President for signature.
  • The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30.
  • The 1996 United States federal budget was the United States federal budget to fund government operations for the fiscal year 1996, which was October 1995 – September 1996.
  • This budget request is President Obama’s first on-time budget proposal since 2011.

• Cash flow forecasts

  • If the cash flow forecast shows, for example, that you are in a deficit position two months out, you will have time to raise the necessary cash you need and avoid a sudden cash crisis.
  • Preparing a cash flow projection is a something like preparing your budget and balancing your checkbook at the same time.
  • Unlike the income statement, a cash flow statement deals only with actual cash transactions.
  • Depreciation, a non-cash transaction, does not appear on a cash flow statement.
  • Cash is generated primarily by sales.

• Budgets, forecasts, and alternative scenarios

  • Earlier, we discussed cash flow forecasts and how they are used.
  • An extension of the cash flow forecast concept is the operating budget.
  • Then, as the year unfolds, actual income and expenses are posted to the accounting records, and compared to what was budgeted, and a variance from budget for each item budgeted (e.g. sales, selling expenses, advertising costs, etc) is calculated.
  • Most organizations take budget variance to date into consideration each month, and then prepare a revised budget (or forecast) for the balance of the year.
  • So, what managers like to do is to develop forecasts of sales, costs, cash, profits, interest rates and the like using different assumptions which, of course, result in different outcomes, some good and some bad.

• The Goals of Capital Budgeting

  • The purpose of budgeting is to provide a forecast of revenues and expenditures.
  • Capital Budgeting, as a part of budgeting, more specifically focuses on long-term investment, major capital and capital expenditures.
  • The main goals of capital budgeting involve:
  • The real value of capital budgeting is to rank projects.
  • Preferred stock have no financial risk but dividends, including all in arrears, must be paid to the preferred stockholders before any cash disbursements can be made to common stockholders; they generally have interest rates higher than those of corporate bonds.

• Defining Capital Budgeting

  • Capital budgeting is the planning process used to determine which of an organization's long term investments are worth pursuing.
  • It is to budget for major capital investments or expenditures.
  • Many formal methods are used in capital budgeting, including the techniques as followed:
  • The discounted cash flow methods essentially value projects as if they were risky bonds, with the promised cash flows known.
  • But managers will have many choices of how to increase future cash inflows or to decrease future cash outflows.