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    Cash budget

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    What is the main reason for preparing a cash budget in the master budgeting process? What additional steps need to be taken for seasonal businesses to ensure an optimal outcome? What are the risks associated with inaccuracies in preparing the pro forma income statement and cash budget?

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    What is the main reason for preparing a cash budget in the master budgeting process?

    The preparation of a cash budget is an important management task. While some small businesses may be able to survive for a time without budgeting, savvy business owners will realize its importance. A cash budget can protect a company from being unprepared for seasonal fluctuations in cash flow or prepare a company to take advantage of unexpected quantity discounts from suppliers.

    While there are other types of budgets that can be prepared, such as projected or pro forma financial statements, a cash budget is a management plan for the most important factor of a company's viability ? its cash position. A company's cash position determines how suppliers will be paid, how a banker will respond to a loan request, how fast a company can grow, as well as directly influencing dividends, increases to owner's equity, and profitability.

    A cash budget is important for a variety of reasons. For one, it allows you to make management decisions regarding your cash position (or cash reserve). Without the type of monitoring imposed by the budgeting ...

    Solution Summary

    What is the main reason for preparing a cash budget in the master budgeting process? What additional steps need to be taken for seasonal businesses to ensure an optimal outcome? What are the risks associated with inaccuracies in preparing the pro forma income statement and cash budget?

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