Personal Finance

Saylor URL: http://www.saylor.org/books Saylor.org

• Different methods may be used to project different incomes and expenses depending on the

probability, volatility, and predictability of quantity and price.

• Projecting capital expenditures involves using the following:

o New information and microeconomic factors

o Macroeconomic factors, although these are harder to predict for a longer period, and

therefore are less relevant

o The relationships described by the time value of money

EXERCISES

1. Using Mark’s budget sheet as a guide, adapt the budget categories and amounts to reflect your

personal financial realities and projections. Develop an operating budget and a capital budget,

distinguishing recurring incomes and expenses from nonrecurring capital expenditures. On what

bases will you make projections about your future incomes and expenses?

2. How does your budget sheet relate to your income statement, your cash flow statement, and your

balance sheet? How will you use this past history to develop a budget to reach your short-term

and long-term goals?

5.3 The Cash Budget and Other Specialized

Budgets

LEARNING OBJECTIVES

1. Discuss the use of a cash budget as a cash management tool.


2. Explain the cash budget’s value in clarifying risks and opportunities.


3. Explain the purpose of a specialized budget, including a tax budget.


4. Demonstrate the importance of including specialized budgets in the comprehensive budget.

The Cash Budget

When cash flows are not periodic, that is, when they are affected by seasonality or a
different frequency than the budgetary period, a closer look at cash flow management
can be helpful. Although cash flows may be adequate to support expenses for the whole
year, there may be timing differences. Cash flows from income may be less frequent
than cash flows for expenses, for example, or may be seasonal while expenses are more