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    Description of a cash budget & its useful to an organization

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    What information is needed in order to prepare a cash budget? What is the relationship between an operating budget and a cash budget? Why is it important for an organization to prepare a cash budget?

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    There are several types of cash budgets used in planning and decision making. I've outlined them briefly below:

    The cash receipts budget is the first cash budget that is prepared. This budget will show the cash receipts (or inflows) that are generated from the operating activities. To prepare this type of budget you need to know the forecasted sales, and then the estimated collection of those sales each month. For example, a typical problem may advise you to compute a cash receipts budget while estimating that 75% of the sales are collected in the month that they ...