Cash budgeting is a mechanism of planning, process control and analysis of cash flow.
Cash flow (CF) is a complex of input and output cash flows of a company or enterprise.
Cash flow category (cash flows item) is a part of cash flow combined by similar economic substance.
Cash flows category “Payments from major customers” is a part of input cash flow; funds transferred from various major customers.
Cash flows category “Payment for materials” – is a part of output cash flow; funds intended for payment of materials provided by various suppliers.
Financial responsibility centre (FRC) is a subdivision or responsible person in charge of planning and application of funds by specific Categories of cash flows.
FRC “Accounting department”, represented by a chief accountant, is in charge of planning and timely transfer of tax payments (Categories of cash flows: “Corporate income tax”, “VAT”, “Income tax”).
FRC “Sales and distribution”, represented by a commercial director, is in charge of planning and timely receipt of funds from customers (Categories of cash flows: “Cash inflow from major customers”, “Other receipts”).
Operating budget is a combination of categories of cash flows similar in their content. In this context operating budgets may include financial and investment budgets.
Sales budget, combination of Categories of cash flows: “Cash inflow for main products”, “Cash inflow from retail sales”, “Other receipts”, etc.
Budget of wages fund, combination of Categories of cash flows: “Labour wages”, “Management wages”, “Charges on wages”, etc.
FRC budget (budget of financial responsibility centre) is a combination of Categories of cash flows, which are within responsibility of a particular financial responsibility centre.
FRC budget of “Supply department” may include the following categories of cash flows: “Expenditures for basic materials”, “Expenditures for supporting materials”, “Expenditures for products delivery”.
Master budget is a total plan or actual cash flows budget formed on the basis of operating budgets. The software uses annual and monthly master budgets.
Cash flow budget is an effective tool for cash flow planning and control, which outlines the management a concept of:
- due to what activity the company receives funds and whether it is able to receive funds from current activity constantly;
- to which extent the company depends on borrowed sources of financing;
- in what cases there occur cash deficiencies and for which account they may be covered, when and under which conditions credits and loans may be obtained;
- whether the company receives sufficient resources for future growth;
- operating efficiency of subdivisions and directions of activities;
- reasons for inconsistencies in financial results and change of cash flow volumes.
Payment budget is a mechanism, which allows controlling current position of the company and using funds to maximum effect.
Aim of cash flow budget formation is planning, reasonable formation of current payments list, control of plan figures execution and analysis of data on movement of funds and their equivalents for a particular period.