Difference Between Cash Budget and Projected Income Statement

Cash Budget vs Projected Income Statement
 

The difference between cash budget and projected income statement is that cash budget includes the estimates of cash inflows and outflows for the accounting year whereas projected income statement provides an estimation of revenues and costs. Both cash budget and projected income statement are prepared as a part of the master budget, providing forecasts regarding the liquidity and profitability, respectively.

CONTENTS
1. Overview and Key Difference
2. What is Cash Budget
3. What is Projected Income Statement
4. Side by Side Comparison – Cash Budget vs Projected Income Statement
5. Summary

What is Cash Budget?

Cash budget estimates the expected cash inflows and outflows of the business for the upcoming year. A cash budget ensures that sufficient liquidity is guaranteed for the period. If a company does not have enough liquidity to operate, it must raise more capital by issuing shares or by taking debt.

Net cash flow forecast will be calculated as the difference between cash inflows and outflows. If there is a negative cash flow, this indicates that the company is likely to experience difficulties in running routine operations at a certain point.

Given below are some factors that can contribute to such a situation.

• Accounts receivables take an increased time period to settle due monies.
• The company has settled accounts payable way ahead of the credit period granted by them.
• There are a number of idle assets that do not generate economic activity.

By providing solutions to minimize the negative impact of above situation, the cash flow situation of the company can be improved.

Figure 01: Cash Budget Format

What is Projected Income Statement?

The projected income statement is an important document that looks at the revenues the business will gain over the next financial year, minus anticipated expenses for that period. Since getting a final figure for income means looking at monies both gained and lost, income projection statements are sometimes called profit and loss statements. The purpose of preparing this statement is to obtain an understanding of how much profit the company will generate in the future. This is vital since shareholders are interested in profits and share price appreciation. The format of a projected income statement is provided below.

Figure 02: Projected Income Statement Format

What is the difference Cash Budget and Projected Income Statement?

Summary- Cash budget vs Projected Income Statement

The difference between cash budget and projected income statement is a distinct one where the cash budget is intended to assess the liquidity while projected income statement is focused on estimating the profitability. While important, both these projections are subjected to general limitations of budgets – the preparation is time-consuming and actual results may be significantly different from the budgeted.

References
1. “Cash Budget.” Investopedia. N.p., 22 May 2015. Web. 28 Mar. 2017.
2. “Cash budgets.” Cash budgets | F2 Management Accounting | ACCA Qualification | Students | ACCA Global. N.p., n.d. Web. 28 Mar. 2017.
3. “What Is an Income Projection Statement?” Chron.com. Chron.com, 21 Sept. 2011. Web. 28 Mar. 2017.
4. “Projected Income Statement.” Projected Income Statement. N.p., n.d. Web. 28 Mar. 2017.

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