Cash flow statement, Cash budget, Operating Cash flow, Performance Budget

 Cash budget is a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.

Cash flow statement

 Cash flow statement is known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7(IAS 7), is the International Accounting Standard that deals with cash flow statements. The cash flow statement reflects a firm's liquidity. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow. The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.

 The importance of cash flow statements are as:

 1. Accounting personnel, who need to know whether the organization ~,vill be able to cover payroll and other immediate expenses;

2. Potential lenders or creditors, who want a clear picture of a company's ability to repay;

 3. Potential investors, who need to judge whether the company is financially sound;

4. Potential employees or contractors, who need to know whether the company will be able to afford compensation;

5. Shareholders of the business.

6. Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances

7. Provide additional information for evaluating changes in assets, liabilities and equity

8. Improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods

 9. Indicate the amount, timing and probability of future cash flows

Operating Cash flow

Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.

Operating cash flows include:

1. Receipts from the sale of goods or services

2. Receipts for the sale of loans, debt or equity instruments in a trading portfolio

3. Interest received on loans

 4. Payments to suppliers for goods and services.

 5. Payments to employees or on behalf of employees

6. Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)

7. Buying Merchandise

8. Depreciation (loss of tangible asset value over time)

9. Deferred tax

io. Amortization (loss of intangible asset value over time)

Performance Budget

A budget that reflects the input of resources and the output of services for each unit of an organization. This type of budget is commonly used by the government to show the link between the funds provided to the public and the outcome of these services. Decisions made on these types of budgets focus more on outputs or outcomes of services than on decisions made based on inputs. In other words, allocation of funds and resources are based on their potential results.

 Performance budgets place priority on employees' commitment to produce positive results, particularly in the public sector. Performance-based budgeting is the practice of developing budgets based on the relationship between program funding levels and expected results from that program. The performance-based budgeting process is a tool that program administrators can use to manage more cost-efficient and effective budgeting outlays.

 This type of budgeting has the following major performance indicators:

 ·        The quantity, quality, and costs of products and services (output) produced by government or government services in order to achieve certain effects, and;

•    The intended effects of those measures (outcome). Performance budgeting comprises three elements:

·        The result (final outcome)

·        The strategy (different ways to achieve the final outcome)

 Activity/outputs (what is actually done to achieve the final outcome)