Final Answer:
The cash budget is a component of financial budgets. The cash budget outlines expected cash inflows and outflows, aiding in short-term liquidity planning, and strategic financial decision-making. Accurate calculations ensure effective financial management and goal attainment. Thus the correct option is option (D).
Step-by-step explanation:
The cash budget is a crucial component of financial planning as it provides a detailed overview of a company's expected cash inflows and outflows over a specific period. It helps in ensuring that the organization maintains adequate liquidity to meet its short-term obligations. Calculations involve estimating cash receipts from various sources, such as sales, investments, and financing, and subtracting anticipated cash disbursements, including operating expenses, debt repayments, and capital expenditures.
The cash budget typically begins with the opening cash balance, adds cash inflows, and deducts cash outflows to determine the projected closing cash balance. This process helps in identifying potential cash shortages or surpluses, allowing management to make informed decisions to address any liquidity challenges or allocate excess funds effectively.
In addition to its role in day-to-day operations, the cash budget is instrumental in strategic financial planning. It aids in setting realistic financial goals, optimizing cash utilization, and minimizing the cost of external financing. The accuracy of the cash budget is crucial for effective financial management, as discrepancies can lead to disruptions in operational activities or missed investment opportunities.
In summary, the cash budget serves as a vital tool for organizations to manage their cash resources efficiently, ensuring financial stability and supporting strategic decision-making. Thus the correct option is option (D).