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Sweety Ltd: Cash budgeting - Essay Example

Masters
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Finance & Accounting
Pages 8 (2008 words)
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Sweety Ltd Cash budgeting Contents Introduction 3 i.Cash Budget 3 ii.How budgets help managers 3 Table 1 5 iii.Analysis of Sweety Ltd 6 References 9 Introduction Sweety LTD is a confectionary trader based in London. Like all other businesses, it has to stay competitive in the market…

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Sweety Ltd: Cash budgeting

i. Cash Budget A cash budget is keeping an account of the inflows and outflows for a specified time period. It is important to know the liquidity of the business and its ability to fulfill everyday operations (investopedia 2011). The budgeting process includes four elements; cash inflows, cash expenditures, change in cash for the period and any new financing needed. Cash sales, purchases, loan payments, expenses, purchase of equipment, beginning balance and ending balance are all included in the process. The knowledge of a cash budget allows the company to determine its capability of giving goods on credit and the length of the credit time period. It’s a good way of summarizing the cash position in order to determine what needs to be done in the business. ii. How budgets help managers Cash budgeting is often used as a short term planning tool (Peavler, R 2011). The short term needs and opportunities of a business can be spotted. For instance, if cash is low then loans can be planned for or if there is excess cash it can be invested in funds for future use. Therefore, this monthly information is useful to manage the cash flow of the business. Moreover, financial institutions are more inclined to provide loans if a methodical cash plan is presented before them (Prepare a Cash Budget ). The strategic plan of a manager could be to expand a business and with only the knowledge of the cash situation, such plans can proceed. ...
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