Why must operating budgets (The operating budgets include the budgets for sales, manufacturing costs (materials, labor, and overhead) or merchandise purchases, selling expenses, and general and administrative expenses) and the capital expenditures budget be prepared before the cash budget

Question

Business

Emmett Mason

14 June, 19:14

Why must operating budgets (The operating budgets include the budgets for sales, manufacturing costs (materials, labor, and overhead) or merchandise purchases, selling expenses, and general and administrative expenses) and the capital expenditures budget be prepared before the cash budget

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Answers (1)

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Nola Robertson · Answer 1

To finance all the budgets sets or in other words finance the departments to achieve the objective set.

Explanation:

The business use budgets as a means to allocate resources to different departments to achieve objectives and in resources cash is one of the best resource the company have. After deriving the cash effects from each of the business operations which include spending and earning. The net effect will go to the cash budget to summaries how much we must have money in hand to fund all these in each month of the year. So to finance the resources allocated we have to plan for having cash in hand to fund these operations set in the budget to achieve the target. Let me explain it with a small example that if you want to go to Texas tomorrow say and you planned to explore the main areas, the traveling cost estimation, food and hotel stay, etc. The last thing you will be assessing the cash budget. If you run out of money you will not be able to achieve the set target so the cash is very important resource which must be allocated in a meaningful way to achieve objects.