CASH BUDGETING AS A BASIS FOR DECISION MAKING. (A CASE STUDY OF AGUATA LOCAL GOVERNMENT AREA)
CHAPTER ONE
1.1 INTRODUCTION
“For which of you desiring to build a tower does not first sit and account the cost whether he has enough to complete it” (Lk. 14:28). Every rational economic unit has some objectives to attain. Individuals, corporate bodies or governments have objectives to achieve. To achieve their respective objectives, resources have to be made available. Unfortunately nature did not distribute her resources abundantly, whilst objectives and needs are numerous and varied as there are various economic units. But the means (that is resources) to satisfy those needs are very scarce. Thus one has to utilize his available resources effectively in order to realise what one want. To maximize the objective of an economic unit requires that one has to plan.
Planning, therefore is the process of determining the future course of action in order to attain a desired objective or a set goal. A business enterprise may have as its objective the erection of an addition factory in say, seven years time. It therefore draws up a plan to accomplish the task it has set for itself. Because finance is scarce, thus each year the enterprise has to plan towards the building of the factory. This yearly explain is known as budgeting – a subset of corporate plan. To a lay man, budget is just an estimate of how to spend money. To the government budget is an estimate of a plan of how resources are going to be supplied and utilized stated a quantitative and monetary terms within a specified period. To accountant therefore budget is a quantitative statement in financial terms, prepared for a specific period, it may be one year for the realization of enterprise set goals. It is thus a very important decision-making instrument. A budget is defined as a financial or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued for the purpose of attaining a given objective.
A budget is the conversion usually by segments and on short range basis of plan into figures, an accounting as it were for the future). A comprehensive budget is made up of functional or sub-budgets. Some of them are, sales budget, production budget, material purchase budget, factory cost budget, selling and administrative budgets, capital expenditure budget etc.
All these functional budget are summarized and compressed in one budget called the MATER BUDGET. This is defined as a total budget in which are packaged in one statement the sale; expenses on production, capital movement on land, equipment and cash budgets of an organization.
CASH BUDGET
Since cash is the most active financial account in a business, the key in preparing a financial budget is therefore, a forecast of cash flows leading to a cash budget. A cash budget is one of the most important budgets prepared in an organisation. It shows in summary form, the expected cash receipt and expected cash payment during the budget period, liquidity and cash flow management are key successful operations of any organisation and it is with good reason that cash budget should receive close attention from accountants and managers.
A cash budget is defined as the planed cash position by interim period for a specific time span” it consists of two parts.
a. The planned cash receipt (inflows)
b. Planed cash disbursements (outflows)
It is concerned with ways to speed up the inflow of cash, ways to delay outflow of cash, sources of cash and temporary uses of excess cash.
Cash budget shows the effect of the budget activities selling, buying, paying wages, investing in capital equipment and so on, on the cash flow of an organisation, it is a continuous activity with budgets being rolled forwards as time progress. Cash budget are prepared in order to ensure that there will be just sufficient cash in hand to cope adequately with budgeted activities. The cash budget may show that there is likely to be a deficiency of cash in some future period in which cash over draft or loans will have to be arranged or activities curtailed or alternately the budget may show that there is likely to be cash surplus in which case appropriate investment or use for the surplus can be planned rather than merely leaving the cash idle in current account.
1.2 STATEMENT OF PROBLEM
Budget is one of the controlling instrument by Management. It is a plan or estimate to be attained by an enterprise. The problem is why budget goals in some cases failed to be realised. It is because of insufficient capital. There are numerous needs but resources to satisfy these need are very scarce. It is with the view to find solution to these problems that the researcher has undertaken this study with Aguata Local Government Area as a cash study.
1.3 PURPOSE OF STUDY
This study is embark upon in order to assist organizations and other interested groups who use cash budget in decision makings. Infact the objectives of this research are: To inform an organisation of its cash position at any point in time. To explain how situational variable could effect budget goals and to point out budget limitations.
1.4 SIGNIFICANCE OF STUDY
The significance of the cash budgeting are:
a. Cash budgeting instills in executive as well as their sub-ordinates the habit of basing decision on investigations studies and research.
b. It provides the yard stick for control of operations is a business firm or any organisation.
c. It makes possible the control over operation, revenue and cost.
1.5 SCOPE AND LIMITATION
In carrying out this work the researcher encounter some constraints.
A. Money: A huge amount of money was needed in printing out the questionnaires and equally large amount of money was needed in shuttling between one office and the other in distributing the questionnaires and in collecting them back.
B. Time: The time allotted for the research work was not enough as to enable the research give an in-depth treatment to is.
C. Low Response by the respondents: Some of the respondents would tell you to come and collect the questionnaire in about two days time, only to be met with their absence on the day appointed. Then to reduce this constraints made the researcher to chose Aguata Local Government Area which is nearness as a scope of study.
1.6 FORMATION OF HYPOTHESIS
Based on the statement of the problem the following hypothesis has been formulated.
A. Ho: my organization has been operating a system of cash budgeting.
HA: My organisation has not been operating a system of cash budgeting.
B. HO: Operating of cash budgeting in my organisation has been continuous.
HA: Operating of cash budgeting in my organisation has not been continiuos.
C. HO: If my organisation experiences any cash budget surplus, it invests it to field income
HA: If any organisation experiences any cash budget surplus, it does not invest.
1.7 DEFINITION OF TERMS
CASH: Money inform of coins and notes rather than cheques.
BUDGET: A financial summary of estimated income and expense of a government, business or household for a given period of time, usually one year.
CASHFLOW: The flowing of money into a business (as income and out of business wages materials).
MANAGEMENT: The body of these in positions of administrative authority.
