Struggling with Cash Budgeting? Need Help with Adjustments and Examples!

Hi,

Can anyone help me in preparing a cash budget for a particular period and tell me the important points to consider while preparing it? There are some adjustments in the treatment of those that I want to know:

1. What is the treatment of expenses that are paid fortnightly with a time lag of 15 days?
2. The company maintains a minimum cash balance of Rs. [amount]. The cash balance in excess of Rs. [amount] is invested in government securities in multiples of Rs. 1000 (suppose).
3. Shortfalls in cash balance are made good by borrowing from banks/financial institutions.
4. The interest received as well as paid is to be ignored.

Please explain all these adjustments with a suitable example. I am very thankful to them for doing so on an urgent basis.

Cash budget reflects only actual cash transactions. Therefore, you will budget the expenses only when they actually become due and paid. Do not treat the expense as one in the cash budget unless it is to be paid. Show the minimum balance of cash as a requirement. When you find that there is excess cash, show the amounts invested as cash payments. Note that payments need not necessarily be expenses; they can also be investments. When you receive cash from the bank, etc., show these as receipts into your cash balance.

Hope I have been of help.

Dear Ratan,

Thank you for this information. I would greatly appreciate it if you could illustrate this with a suitable example. I am eagerly awaiting your response.

Thank you.

Cash budget is prepared based on transactions that involve only cash, such as cash purchases, payments, and receipts. Only the cash projected to be received, paid, or invested in a particular accounting month is recorded in the cash budget. Expenses paid fortnightly with a 15-day time lag should be recorded accordingly as and when the projected time of the expense arises.

1. What is the treatment of expenses if they are paid fortnightly with a time lag of 15 days? If you are preparing a cash budget as of the 31st of this month and expect a cash payment on the 2nd for Rs 10000, show this as an expense.

2. The company maintains a minimum cash balance of Rs..... The cash balance in excess of Rs...... is invested in government securities in multiples of Rs. 1000 (Suppose). For example, if the cash balance is Rs 50000, and the required cash balance is only Rs 10000, the excess amount of Rs 40000 is invested in Government securities.

3. Shortfalls in cash balance are made good by borrowing from banks/financial institutions. If the required cash balance is Rs 10000 and the available cash balance is only Rs 1000, the remaining balance of Rs 9000 is borrowed from the bank.

4. The interest received as well as paid is to be ignored.