Question

. Explain how forecasting to develop a cash budget differs from forecasting for capital budgeting analysis. Include differences in the information used in the forecast, and how differences in the purpose of the forecast influences the information used and interpretation of the result.

Answer 1

Sr No	Cash Budget	Capital Budget
1	Cash budget deals with the inflow and outflow of cash whether it is on account of capital expenditure or revenue expense	Capital budget deals with the procurement or disposal of assets and ignores the revenue expenses
2	Normally, number of items with small values are required to be tracked for forecast	Normally, the items are less but the values are high
3	It has the impact on a short and medium term cash availability	It has impact on long term cash availability
4	While planning cash budget, there is no need of to discount the cash flows to arrive at present value	While planning for capital budget, the future cash flows are discounted to arrive at the present value
5	Tax implications are not complex	Tax implications are complex because of calculation of depreciation