Key concepts

Budgeting is an important internal control tool used by businesses to predict future financial activities. By planning ahead, businesses can better manage their resources and anticipate potential cash flow issues.

Key Concepts

Concept	Explanation	Purpose
Cash Budget	A forecast of expected cash receipts and payments over a specific period.	To predict upcoming cash inflows and outflows.
Projected Income Statement	An estimate of future income and expenses.	To forecast potential profits or losses.
Debtors' Collection Schedule	A plan showing how and when the business will collect money from debtors.	To forecast future receipts from debtors.
Creditors' Payment Schedule	A plan outlining how and when the business will settle its debts with creditors.	To forecast future payments to creditors.

Sales

• A business's primary income source can be cash or credit sales.
• Cash sales are received immediately and entered on the cash budget in the month they occur.
• Credit sales are collected later from debtors; this timing is reflected in the debtors' collection schedule.
• Sometimes, you must calculate the split between cash and credit sales based on given information.