Question

Describe a scenario where having a cash flow budget would be of benefit.

Answer 1

Cash flow budget is an estimation of the cash flows for a business over a specific period of time.Cash flow budget is used whether the entity has sufficient cash to operate.

Every business has revenue goals and targets that are time sensitive.But cash flows budget or forecasting can help a business owner to understand exactly when and if they will reach those goals.

For most businesses,it is rare to have cash surplus in the bank.But using additional cash for reinvestment in new markets,or for the repayment of the debts,can be essential to keeping afloat.Knowing when they will have surplus cash in the bank and when the surplus will occur,means that business owners are better able to plan for what to do with surplus.This can done through cash flow budget.