Question

Primary purpose of a cash budget

Answer 1

Answer:

The Primary purpose of a cash budget is to provide a detailed plan of future cash flows.

A cash budget details a company's cash inflow and outflow during a specified budget period, such as a month, quarter or year. Its primary purpose is to provide the status of the company’s cash position at any point of time.

This helps the company make critical decisions such as creating cash reserves to make arrangements for projected shortages and using excess funds prudently.

Additionally, the cash budget helps in prioritizing payments in the budget period. It also helps in analyzing budget-versus-actual variances in cash inflow and outflow.