ACCA FM · Chapter 5 · Question 5 of 10
Which of the following is the main purpose of preparing a cash budget?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) To identify periods of expected cash surplus or shortfall so that action can be planned in advance
Explanation
A cash budget forecasts cash receipts and payments period by period. It allows management to arrange finance in advance of a shortfall, or to plan the investment of surpluses. It is not a profit forecast, because it excludes non-cash items such as depreciation and includes capital and financing cash flows.
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