Question

Google prepares a cash budget. What is a cash budget? Why must operating budgets and the capital expenditures budget be prepared before the cash budget?

Short answer

Capital assets are those assets of an organization acquired once in a while and require huge funding. These assets are represented under the fixed asset section of the balance sheet.

Step-by-step solution

Cash budget

A cash budget is a budgeting schedule that measures the firm's monthly inflow and outflow of cash transactions. It helps the organization is estimated future expected liquidity in the financial market.

Operating budgets and capital expenditure budgets

The operating budget provides the firms with the expected operating expenses of the firm (i.e., cash outflow). On the other hand, the capital expenditure budget also reflects the outflow of cash made in acquiring capital assets. Therefore, the operating budget and capital expenditure budget need to be prepared before the cash budget since these two budgets complete the firm's cash budget.