Cash and cash equivalents are used in cash budgeting, and they are used in capital budgeting if they are being transferred into another type of asset.
Effective business managers create cash and capital budgets to determine when there will be available money or shortfalls that need to be managed.
The main functions of the cash budget are as under:#N#1. Forecasting of cash requirement. This budget is useful in the cash requirements for a particular period. This is useful in planning cash requirement at a most profitable time.#N#2. Cash position. This budget is an indicator of deficit or surplus of cash at a specific time for which management can plan for borrowing or investment of surplus cash.#N#3. Controlling cash expenditure. Once the departmental budgets are prepared, it becomes difficult to change, every department tries to work with resources specified.#N#4. Expansion schemes. Expansion is the outcome of surplus resources. Cash budget serves as a technique for co-ordinating the expansion programs.#N#5. Sound dividend policy . The cash budget is very useful for sound dividend policy. It is always related to the liquid position of the company. The cash dividend is always liked by the shareholders the higher rate is proof of profitability of the company.
The cash budget is an estimate of cash receipt and its payment during a future period of time. It deals with other budgets such as materials, labor, overheads and research and development. The cash budget is a statement of receipt and payment of cash during a specific time.
Sound dividend policy. The cash budget is very useful for sound dividend policy. It is always related to the liquid position of the company. The cash dividend is always liked by the shareholders the higher rate is proof of profitability of the company.