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The primary reason for preparing a cash budget is to determine the amount of cash to...

The primary reason for preparing a cash budget is to determine the amount of cash to include on the budgeted balance sheet. Do you agree or disagree with this statement? Explain.

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Answer #1

Disagree

A cash budget details a company's cash inflow and outflow. It is the final figure coming out from companys cash flow statement. 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 meet projected liquidity requirements or utilize excess cash reserves properly. It also helps in analyzing budget-versus-actual variances in cash inflow and outflow.

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