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Operating budget versus a cash budget

1. What is the relationship between an operating budget, and a cash budget?

2. Is positive cash flow the same thing as net income? Why or why not?

Solution Preview

An operating budget is a plan for expenditures for the next accounting period (whether monthly, quarterly or annually). It would generally be laid out in the same format as an income statement beginning with sales, cost of sales, and general and administrative expenses. Depending on the size and structure of a company, an operating budget might be limited by location, or maybe it would only sales and cost of sales. The term 'operations' implies sale of product/service followed by the costs of selling or producing the product/service.

A cash budget is a plan for the next accounting period, much as the operating budget except it forecasts only when cash will be required and when it will be spent. As ...

Solution Summary

The 480 word solution provides a good theoretical discussion about the relationship between operating budgets and cash budgets. A good explanation of the differences is included too. The last two paragraphs explain the differences between cash flow and net income. For those with questions, this is a thorough and detailed review.

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