Page 96 - BA2 Integrated Workbook - Student 2017

Chapter 6

Cash budget

4.1 Definition

The CIMA Terminology defines a cash budget as ' a detailed budget of
estimated cash inflows and outflows incorporating both revenues and
capital items.'

The cash budget is one of the most vital planning documents in an organisation. It
will show the cash effect of all of the decisions taken in the planning process.

A cash budget can give forewarning of potential problems that could arise so that
managers can be prepared for the situation or take action to avoid it.

4.2 Cash positions

There are four possible cash positions that could arise, each with different
management action:

Short-term Long-term

Arrange a bank Raise long-term

overdraft, reduce finance, such as
Deficit receivables and long-term loan

inventories or capital or share

increase payables capital

Invest short term, Expand/ diversify
increase operations,
Surplus
receivables and replace or update
inventories or pay non-current
suppliers early assets

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