Business Finance: Cash Budget and Accounting Equation

This article discusses the concept of cash budget and accounting equation in business finance. It explains the importance of accounting equation and how it always works. It also highlights the benefits that a company can gain from having its shares listed on a stock exchange.

ACCOUNTS

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TASK – 1
A cash budget can be defined as the statement of estimated cash inflows and cash
outflows for a specific financial period. It can be made in different ways like weekly, monthly,
quarterly or annually. It gives the real portrayal of the management of the sales and expenses of
the company so that it can reach to the optimal cash flows level in order to manage the efficiency
in the organization. The cash flow of the respective company is mentioned below in accordance
to all the entries mentioned in the report brief:
Cash Budget ending 31st March, 2022
Particulars January February March
Cash Collections
Amount invested
Cash Sales
10000
1260
-
960
-
885
TOTAL 11260 960 885
Cash Payments
Drawings
Purchases (Personal)
Purchases
Motor Vehicle
Cash Purchases
Electricity
Telephone cost
Fuel Cost
800
499
720
-
2800
-
120
-
800
-
-
-
1500
-
120
-
800
-
-
3200
750
285
120
65
TOTAL 4939 2420 5220

Task – 2
2.1. What is Accounting Equation and explain why the accounting equation will always work?
Also, provide an example with explanation.
The accounting equation can be defined as the sum of company's total assets are equal to
the sum of its total liabilities along with the shareholder's equity. It is a basic accounting equation
or the equation of balance sheet. Accounting equation can be considered as the foundation of
double entry book keeping system as it helps in the preparation of a balance sheet without any
errors or omissions. The accounting equation formula is mentioned below:
Liabilities = Assets – Owner’s Equity Owner’s Equity = Assets – Liabilities
The Importance of Accounting Equation:
The formula of accounting equation basically show the relationship between the different
components of the formula mentioned above. The major objective to prepare the accounting
equation is directly related to the preparation of the financial statements required for the purpose
of making certain financial decisions. It is considered as an important component because it
actually helps in the preparation and analysis of the final statements of a business organization. It
is basically the foundations of all the components of the financial statements. As almost every
organization works on the concept of double entry book keeping system it becomes highly
necessary that the accounting equation must be prepared to reach towards the path of final
results. As the global adherence of the double entry book keeping system has been made
compulsory that the system of accounting is standardized as well as full proof. The accounting
equation ensures that all the entries in the books and records are properly recorded and there is
the existence of a verifiable relationship between the all the components of accounting equation.
This equation of accounting always works majorly because it is itself a balancing tool which is
responsible of making all the entries in the balance sheet must be in the most best possible way
so that any kind of error can be effectively avoided.
2.2. What benefits might a company gain from having its shares listed on a stock exchange?
A stock exchange can be defined as the centralized place where the shares companies
which are publicly traded. The purchase and sale of all the financial securities is done with which

stocks are traded. When the companies get listed with a respective stock exchange they get
several number of benefits which are mentioned below:
 Fund Raising:
Listing of the company on the stock exchange provide the facility of raising funds from the
general public easily. It also provides an exit route to the investors because if the funds ca be
raised with the help of stock exchange the requirement of the investors gets reduced.
 Better corporate practice:
Stock exchange has some strict policies against the violation of the listing agreement. Therefore
in any case some illegal practice happens it results into the de listing or the suspension of the
financial securities. This shows that a better corporate practices can be developed in the business
organization as well.
 Disclosure of financial information on time:
The disclosure of the financial informations happen on time when the securities are listed on the
stock exchange. The major reason behind that is the information regarding the bonus, dividend,
company etc. is released on time so that the company can build the investor confidence and high
level of transparency accordingly.
 Access to capital for growth:
For the purpose of the expansion it becomes necessary for the companies to raise finance.
Therefore, stock exchange can help the company to increase the base of shareholders and
enhancing the level of credibility of the company.
 Enhanced visibility:
When a company gets listed on the stock exchange it helps in increasing the visibility
considerably. The company and its brand becomes even more popular. Also it helps in
conducting the business operation in the best possible manner with the element of transparency
in the workings.