(Besley and Brigham 2000). If the cash budget shows that a firm has excess cash it needs to pay its short term debts that excess cash can be invested and interest or dividend income can be earned. On the other hand, if the cash budget shows more cash disbursements and less cash inflow, the deficit has to be covered by borrowing the shortfall of cash to pay short term expenses (Daft 2003).
The following report is aimed at analyzing the budgeting process and includes the cash budget of Sungsun Company as it is important for a company to know about its future cash balances. It is essential for a firm to determine the amount of cash in hand it should have at any time to ensure smooth business operations is uninterrupted. The following is the budgeting process that is used to make the cash budget Sungsun Company.
The disbursement and receipts or scheduling method is used to make the cash budget. Each months cash disbursements and cash receipts are estimated and then the net cash flow is determined by subtracting cash disbursements from cash receipts. Negative net cash flow indicates there is an outflow of cash and positive net cash flow indicates that there is an inflow of cash. Sungsuns cash receipts include payment receipt from debtors and disbursements include payment to creditors and payment of wages, administrative expenses and taxes. Budgeted sales are calculated keeping in mind seasonal fluctuations and other factors. Payment to creditors and debtors and administration expenses are budgeted keeping in mind the previous trends. The cash inflows and cash outflows in each month are then calculated and subtracted to obtain the net budgeted cashflow of each month.
Cash budget is an extremely important component for proper management of cash for a rapidly expanding company such as Sungsun Company. It helps in planning investment and borrowing strategies for the efficient use of cash which is extremely important for an expanding company as