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CMA Intermediate · Cost Accounting · Budget and Budgetary Control

Which of the following is correctly treated as an item NOT to be included while preparing a cash budget of a manufacturing company?

Depreciation is excluded from a cash budget because it is a non-cash expense that reduces profit without any movement of cash. Tax payments, cash capital purchases and debtor collections are real cash flows and therefore appear in the cash budget.

  1. ADepreciation on plant and machineryCorrect
  2. BPayment of advance income tax
  3. CPurchase of a new machine for cash
  4. DReceipts from debtors

Explanation

A cash budget records only actual cash inflows and outflows. Depreciation is a non-cash charge to profit and involves no cash movement, so it is excluded. Advance tax, cash purchase of a machine and collections from debtors all involve cash.

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