ECONOMICS

Detailed explanation-1: -The starting point should be an annual cash plan, prepared in advance of the fiscal year, setting out projected cash inflows and cash outflows month by month.

Detailed explanation-2: -The first step in the preparation of the cash flow budget is the identification and timing of cash outflows. The typical business will have cash inflows from three sources: cash sales, cash payments received on account, and loan proceeds.

Detailed explanation-3: -The cash budget starts with the beginning cash balance to which is added the cash inflows to get cash available. Cash outflows for the period are then subtracted to calculate the cash balance before financing. If this balance is below the company’s required balance, the financing section shows the borrowings needed.

Detailed explanation-4: -All budgets begin with the sales budget. This budget estimates the number of units that need to be manufactured and precedes the production budget. The production budget (refer to Figure 10.5) provides the necessary information for the budgets needed to plan how many units will be produced.