Cash flow forecast:
Estimate of the timing and amounts of cash inflows and outflows over a specific period (usually one year).
A cash flow forecast shows if a firm needs to arrange an overdraft facility with the bank and so should show the most realistic likely figures.
A cash flow forecast shows if a firm needs to arrange an overdraft facility with the bank and so should show the most realistic likely figures.
Cash budget:
A projection of target cash inflows and outflows set by management to minimise costs and maximise revenue.
Differences between the two:
A cash budget may be produced only once in the financial year.
A cash budget is more of a motivational management tool. Senior managers can see from the cash budget set targets for their departments. This must motivate them to meet these targets. Managers may receive high financial rewards if they 'hit the budget'.
A cash flow forecast is a more practical financial statement. Having more realistic figures helps with forward financial planning and avoiding unwanted and expensive unauthorised overdrafts. The forecast is updated at regular intervals, perhaps monthly or quarterly.
