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Cash Flow Budget
A cash flow budget or cash budget is the estimate of cash inflows and outflows over a given time.
A cash flow budget helps you to keep track of the cash in hand.
Profit or loss doesn’t matter, you need to maintain the cash flow budget so that you won’t run out of cash in hand.
In business cash is one of the most essential commodities.
A business can survive without profit for a while but without cash it will come to a halt.
So it is very much important to keep a budget of your cash inflows and outflows so that the business doesn’t run out of cash suddenly.
Formula for cash flow:
Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure.
Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital
Q: What is the purpose of a cash flow budget?
A: Cash flow budget outlines the cash inflows and outflows. It helps you to keep track of the money you have in hand.
Q: How do you prepare a cash flow budget?
A: Cash flow budget can be prepared by these steps:
1) Set the time period.
2) Estimate sales units,
3) Estimate sales income,
4) Timing of income.
5) List and add expenditure.
6) Compute surplus or deficit.
7) Review sales units