CASH BUDGETING AS A BASIS FOR MAKING A DECISION

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Description

RESEARCH INFORMATION

[icon type=”icon-pencil”]: CASH BUDGETING AS A BASIS FOR MAKING A DECISION
[icon type=”icon-book”]: Chapter 1 – 5
[icon type=”icon-book-open”]: 68 Pages
[icon type=”icon-basket”]: #3, 000
[icon type=”icon-doc-line”]: Ms Word format

This study, CASH BUDGETING AS A BASIS FOR MAKING A DECISION contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.

Keywords: CASH BUDGETING AS A BASIS FOR MAKING A DECISION


RESEARCH BODY

ABSTRACT

The research project was on cash budgeting as a basis for making a decision. The whole work has been divided into five chapter.

Chapter one: Introduction of the project. Chapter two talks on literature review, Chapter three, takes eared of the methodology, Chapter four is about findings and chapter five is about conclusion and recommendation.

In carrying out this project, the research based only on the secondary sources of data collection.

In case of secondary approach she (researcher) utilized library research (text books) journals and unpublished lectures. The researcher found out that some projects were stated and abandoned half way while some other establishments adhere strictly to their cash budgets.

In her conclusion, the researcher said that cash budgeting was an impact management toll both in publish and private sectors.

Finally, she (researcher) recommended that orientation programme should be organized for new staff, that modern accounting equipments should be bought and put in use, that monthly cash budget should be introduced to take care fluctuations in the economy and that management should install effective financial rewards as motivation towards meeting the organization’s budget objectives.

CHAPTER ONE

1.1     BACKGROUND STUDY

Cash is represented by those monetary items immediately available to management for business purposes. Cash includes commercial and savings deposits in banks and else where, available on demand and money items on hand that can be used as a medium of exchange or that are acceptable for deposit at face value by a bank. Cash is involved in most business transactions. This is due to the nature of business transactions, which include a price and conditions calling for settlement in terms of medium of exchange.

For instance, the movement of cash completes almost all purchases and sales transactions. Purchases of goods and services normally result in cash payments while sales normally in cash receipts.

“Business and individuals have these primary motives for holding cash and these are the transactions motive, the precautionary motive and the speculative motive”.

(i)                The transactions motives enables firms and companies to conduct their ordinary business making purchase and sales.

(ii)             The precautionary motives depends on the predictability of cash flow and the ability of the company to borrow on short notice. This motive enables a firm to provide enough find as a protection against unexpected demand.

(iii)           The speculative motive enables the organization to take advantage of such unexpected opportunities as may arise.

Moreover, sound making working capital management requires the maintance of adequate amount of cash for certain specific reason.

(i)                Sufficient cash per nuts taking trade discount.

(ii)             Adequate liquid assets are required to strengthen the current and acid test ratio which are key items in the appraisal of a firm’s credit worthiness.

(iii)           To take advantage of profitable business opportunities as cash is a major requirement.

(iv)           Adequate cash is necessary to provide a firm with sufficient liquidity to meet various emergencies.

It is disadvantageous to hold no cash. The costs appear less obvious and rather more difficult to quantities these include the inability of the firm to meet bills as they fall due, the opportunity cost of being unable to take any unexpected opportunities (like buying some cheap stock for cash) and cost associated with having to borrow cash at expensive short-term rates in order to satisfy unexpected urgent demand.

Whatever the cost, it is the responsibility of management to balance these costs with each other so as to ascertain and maintain that optional level of cash to be the use of such budgeting is one method of attaining this level.

This (cash budgeting) is usually done only a year in advance or on a monthly basis. The cash inflows and outflow estimated for cash period are identified and the likely cash balance projected from them. Steps cash then be taken at an early stage in the planning process to illustration.

Cash inflow                   January (N)          February (N)                  March (N)

Debtors                10,000                  11,000                           110,000

Cash sales            2,000                    2,000                             2,000

Total inflow (X)   12,000                  13,000                           11,000

CASH OUTFLOW

Creditors              7,000                    8,000                             10,000

Wages                  4,000                    4,000                             4,500

Total out flow      11,000                  12,500                           14,000

SURPLUS/DEFICIT

(X – Y)                 1,000                    500                       (3,500)

CUMULATIVE

SURPLUS/DEFICIT      1,000          1,500                    (2,000)

The above illustration shows that cash surpluses are expected in January and February where as in March, a deficit is expected. If there were no cash deficit is expected. If there were no cash in the bank on 1stJanuary, the bank balance at the end of each month would be given by the cumulative surplus (deficit) figure above.

On the basis of this budget, management must decide on how it is going to overcome the March deficit and how to use the finance February, it should seek to ahead and budget and other financial management tools like current ratio and liquidity ration.

Keywords: CASH BUDGETING AS A BASIS FOR MAKING A DECISION



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Keywords: CASH BUDGETING AS A BASIS FOR MAKING A DECISION

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