Cash Flow Budget and Statement

Cash flow is the money needed to run your company on a day-to-day basis. This is the money available after all the expected expenses have been covered, for unexpected expenses.

Cash flow statements are a tool that reflects the sources from which funds are generated during the accounting period as well as the purpose for which these were used.

The cash flow statements must be compiled for one year or at least until positive cash flow is achieved if not attained within the first year.

The most important feature of a cash flow budget is that only cash expenses and cash income are indicated at the estimated time of payment or receipt.

The cash flow statement reflects the source from which funds were generated during the accounting period. Cash flow is an important consideration when it comes to financing a business. The bank and monthly bank balance are important elements of a cash flow statement. A cash flow statement consists of three components: income, expenditure and bank balance.

Income consists of operating income, capital income and cash income.

Expenditure is classified as operating expenditure, capital expenditure and debt repayment.

Shortfall/surplus is calculated by deducting total expenditure from the total income.

The various components of a cash flow budget statement are:

The Need For The Twelve-Month Cash Flow Budget

In order to understand a cash flow budget, it is necessary for a farmer to understand which activities take place during the season, and the associated costs to complete these activities successfully. For example, cotton is a cash crop. In order to set up a cash flow budget the farmer must have a cultivation programme in place as the crop will need attention (insecticides, fertilizers, picking, ext.) at different growing stages, and therefore, cash must be available for every event according to the programme arranged beforehand.