Final answer:
The first step in preparing a cash flow budget is not just identifying cash outflows but also forecasting cash inflows. The process starts with estimation of cash receipts, followed by identifying expected cash outflows and evaluating net cash flow.
Step-by-step explanation:
The statement is false. The first step in the preparation of a cash flow budget is not solely the identification and timing of cash outflows, but rather the forecasting of both cash inflows and cash outflows. Cash inflows generally stem from sales, loan proceeds, interest earnings, and asset sales. Without a comprehensive view of both inflows and outflows, the budget would not provide an accurate picture of the company's cash position.
To prepare an effective cash flow budget, the process typically begins with the estimation of cash receipts or inflows. This includes planning for all sources of cash that the company expects to receive within a specified period. After inflows are estimated, the business will then identify the timing and amount of expected cash outflows, which might include expenses like rent, payroll, materials, and loan payments. Following that, the budget compares the inflows and outflows to determine the net cash flow for the period. This allows the business to anticipate periods of cash shortfall or surplus and make informed decisions accordingly.