Budgeting - Budgeting | en - 188 - 17712
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Module 1: Budgeting

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Accounting - Budgeting

Budgeting

The cash budget is a report designed to show future movements of cash into
and out of a business. The purpose of a cash budget is to plan and control
future cash movements.

The cash budget may indicate shortages of cash, in which case the business
may:

* arrange additional finance

* postpone intended spending on non-current assets

* delay payment of outstanding debts

* attempt to improve debt collection

* change the price at which goods and services are sold

The cash budget also indicates excess cash. This enables the business to
make decisions such as:

* early repayment of debts to reduce interest expense

* investment in longer term projects offering better interest rates in
preference to holding the cash in the bank

* a reduction in owner's equity, improving return on investment

BANK BALANCE 1 May

2 100

+ ESTIMATED CASH RECEIPTS

Cash sales
4 000

Debtors
5 000

Capital
2 500

Loan (received)
3 000

Sale of equipment
1 000

15 500

17 600

- ESTIMATED CASH PAYMENTS

Cash purchases
2 400

Expenses (paid)
3 600

Drawings
2 000

Loan (repaid)
1 000

Vehicles
6 000

15 000

BANK BALANCE 31 May

2 600

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