Cash Budgeting As A Basis For Decision Making (A Case Study Of Aguata Local Government Area)

Project and Seminar Material for Accountancy / Accounting

Cash Budgeting As A Basis For Decision Making (A Case Study Of Aguata Local Government Area)


Abstract


The research project was on cash budgeting as a basis for decision making (A case study of Aguata Local Government Area).

The whole work has been divided into five chapters.

  • Chapter one, Introduces the project
  • Chapter two, talks on literature review
  • Chapter three takes care of the methodology
  • Chapter four is about data analysis and
  • Chapter five is about summary, conclusion and recommendation.

In carrying out this project the researcher applied two pronged approaches to sounding of data.

The two approaches were the primary and secondary source of data collection.

In case of the primary approach researcher developed a list of questionnaire which she distributed to respondents. The second data collection utilized library research, textbooks, journals and unpublished lecturers. The questionnaire is attached as an appendix on the end of the work.

The data were analysed in form of hypothesis by using chi-square form of analysis the researcher found out that some project were started and abandoned half way while some other establishments adhere strictly to their cash budgets.

In her conclusion, the researcher said that cash budgeting is an important management tool both in public and private sectors.

Finally, the researcher recommended that orientations programme should be organised for new staff, that modern accounting equipments should be bought and put in use, that monthly cash budget should be introduced to take care of fluctuations in the economy and that management should install effective financial rewards as motivation towards meeting the organisations budget objectives.


Chapter One


1.0 Introduction

1.1 Background Of The Study

“For which of you desiring to build a tower does not first sit and account the cost whether he has enough to complete it” (Lk. 14:28).

Every rational economic unit has some objectives to attain. Individuals, corporate bodies or governments have objectives to achieve. To achieve their respective objectives, resources have to be made available. Unfortunately nature did not distribute her resources abundantly, whilst objectives and needs are numerous and varied as there are various economic units. But the means (that is resources) to satisfy those needs are very scarce. Thus one has to utilize his available resources effectively in order to realise what one want. To maximize the objective of an economic unit requires that one has to plan.

Planning, therefore is the process of determining the future course of action in order to attain a desired objective or a set goal. A business enterprise may have as its objective the erection of an addition factory in say, seven years time. It therefore draws up a plan to accomplish the task it has set for itself.

Because finance is scarce, thus each year the enterprise has to plan towards the building of the factory. This yearly explain is known as budgeting – a subset of corporate plan.

To a lay man, budget is just an estimate of how to spend money. To the government budget is an estimate of a plan of how resources are going to be supplied and utilized stated a quantitative and monetary terms within a specified period.

To accountant therefore budget is a quantitative statement in financial terms, prepared for a specific period, it may be one year for the realization of enterprise set goals. It is thus a very important decision-making instrument.

A budget is defined as a financial or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued for the purpose of attaining a given objective.

(A budget is the conversion usually by segments and on short range basis of plan into figures, an accounting as it were for the future).

A comprehensive budget is made up of functional or sub- budgets. Some of them are, sales budget, production budget, material purchase budget, factory cost budget, selling and administrative budgets, capital expenditure budget etc.

All these functional budget are summarized and compressed in one budget called the MATER BUDGET.

This is defined as a total debuget in which are packaged in one statement the sale; expenses on production, capital movement on land, equipment and cash budgets of an organization.

Cash Budget

Since cash is the most active financial account in a business, the key in preparing a financial budget is therefore, a forecast of cash flows leading to a cash budget. A cash budget is one of the most important budgets prepared in an organisation. It shows in summary form, the expected cash receipt and expected cash payment during the budget period, liquidity and cash flow management are key successful operations of any organisation and it is with good reason that cash budget should receive close attention from accountants and managers. A cash budget is defined as the planed cash position by interim period for a specific time span” it consists of two parts.

  1. The planned cash receipt (inflows)
  2. Planed cash disbursements (outflows)

It is concerned with ways to speed up the inflow of cash, ways to delay outflow of cash, sources of cash and temporary uses of excess cash2

Cash budget shows the effect of the budget activities selling, buying, paying wages, investing in capital equipment and so on, on the cash flow of an organisation, it is a continuous activity with budgets being rolled forwards as time progress3.

Cash budget are prepared in order to ensure that there will be just sufficient cash in hand to cope adequately with budgeted activities. The cash budget may show that there is likely to be a deficiency of cash in some future period in which cash over draft or loans will have to be arranged or activities curtailed or alternately the budget may show that there is likely to be cash surplus in which case appropriate investment or use for the surplus can be planned rather than merely leaving the cash idle in current account.


1.2 Statement Of Problem

Budget is one of the controlling instrument by Management.

It is a plan or estimate to be attained by an enterprise. The problem is why budget goals in some cases failed to be realised. It is because of insufficient capital. There are numerous needs but resources to satisfy these need are very scarce. It is with the view to find solution to these problems that the researcher has undertaken this study with Aguata Local Government Area as a cash study.


1.3 Purpose Of Study

This study is embark upon in order to assist organizations and other interested groups who use cash budget in decision makings. Infact the objectives of this research are: To inform an organisation of its cash position at any point in time. To explain how situational variable could effect budget goals and to point out budget limitations.


1.4 Significance Of Study

The significance of the cash budgeting are:

  1. Cash budgeting instills in executive as well as their sub-ordinates the habit of basing decision on investigations studies and research.
  2. It provides the yard stick for control of operations is a business firm or any organisation.
  3. It makes possible the control over operation, revenue and cost.

1.5 Formation Of Hypothesis

Based on the statement of the problem the following hypothesis has been formulated.

  1. Ho: my organization has been operating a system of cash budgeting.
    HA: My organisation has not been operating a system of cash budgeting.
  2. HO: Operating of cash budgeting in my organisation has been continuous
    HA: Operating of cash budgeting in my organisation has not been continuos.
  3. HO: If my organisation experiences any cash budget surplus, it invests it to field income
    HA: If any organisation experiences any cash budget surplus, it does not invest.

1.6 Definition Of Terms

Cash:

Money inform of coins and notes rather than cheques.

Budget:

A financial summary of estimated income and expense of a government, business or household for a given period of time, usually one year.

Cashflow:

The flowing of money into a business (as income and out of business wages materials).

Management:

The body of these in positions of administrative authority.

Creditors:

Persons, group of organisation to when money is owned.

Debtors:

Person, group or organisation that owns money.

Surplus:

Amount left over after one has used all that one needs amount by which money received is greater than money spent.

Decifit:

Amount by which something especially sum of money is too small.


Brief History Of Aguata Local Government Area

Aguata Local Government Area was one of the oldest Local Governments in the Eastern Nigeria. It was created by then colonial master through the indirect rule system. The came and sought for a land to build and administrative centre to facilitate easy administration and bring their government nearer tot he people that was the year 1918. A renounced traditional rules and prominent warrant Chief Ezeabasili (Gbulie Aku 1 of Isuofia) showed them a virgin land that is now the headquarter of Aguata Local Government Area to build according to him their temporal office which thought would be temporal. The district officer (D.O) as he was called then accepted the offer with good faith and started the building.

The district officer was told that the name should be named Aguata meaning land of grasses. With advent of fine the site had undergone many changes. Now the headquarters is now an attraction centre with many magnificent buildings here and there.

By then the towns that made up the local government were forty-five (45) in number. After the independence many of them agitated to carve out their own local government out of their mother local government.

The people of Orumba was granted an autonomy in 1988 by then government of Col. Nnaemeka Akonobi. Again it was spitted into Orumba North and Orumba South in 1990.

Presently the Aguata Local Government Area is made up of fourteen (14) town namely:

Achina, Aguluezechukwu, Akpo, Amesi, Ekwuluobia, Ezinifite, Igbougwu, Ikenga, Iusofia, Nkgologwu, Oraeri, Uga, Umuona, Umuchu.. Almost all these communities have one or more secondary school many commercial schools (both approved and inspected, but yet to be approved, are more than 100 primary schools and nursery school.

The Local Government area is bounded in the nest by Anaocha Local Government Area and in the Eastern part by Orumba North Local Government Area. in its Northern part Anaocha Local Government area on the boundary. While Ideato Local Government of Imo State is on its southern part.

The Local Government Area is made up of department namely, health and agricultural department and finance department.


Chapter Five


Summary Of Findings, Conclusion And Recommendation

5.1 Summary

It has been the objective of this research to find out whether management decisions have been implied on cash budgeting with Aguata Local Government as a cash study. To accomplish this objectives, various data were collected from various sources and observation made.

Personal interviews were made, library research work was done and questionnaires which has been incorporated in this report was constructed and used.


5.2 Findings

The researcher through this study found many things, some establishment embarked one some capital project without having a realistic and attainable budgets. This eventually led to the abandonment of such projects prior to which a whooping amount must have been sunk in.

Many other establishment were always conscious of their cash budgets. For an instance, the “factory accountants” (Chief Accountant) of Fizel Chemical Industries Limited has this to say; cash budgeting is further used to:

  1. Create a spread in period of payment for the purchase of raw materials and other inventories and spare parts.
  2. Check excess expenditure especially in periods of low sales of form products like experienced during rainy season.

Again, the “Accountant” (Chief Accountant) of Gilage farms Nigeria Limited) has this to say.

“With the aid of competent staff, efficient cash budgeting helps the form to know to run its activities for a given period. But if we experience surplus or deficit, we invest it to yield income and curtailed activities respectively.


5.3 Recommendations

Against these analysis, the following have been recommended in order to assist management drive full benefit of cash budgeting.

  1. That management should organize orientation programme for all new staff in accounts department on budget activities.
  2. Monthly cash budgeting should be introduced to take care of the fluctuation in the economy.
  3. That modern accounting equipment be bought and put into use e.g. photocopies, accounting machine etc. for effectiveness and efficiency.
  4. That management should install effective financial rewards as motivations towards meeting the organizations budget objectives.
  5. That the preparation of the budget should involve all concerned rather than restricting to the top management with a view to reducing or remaining completely the aspirational distortions, the reason is that with grater participation is the preparation and implementation, there will be objectives, targets and performance because those who prepare also execute in any cases.

5.4 Conclusion

With particular reference tot he results obtained in Chapter Four (Hypothesis “a to d”) the researcher concluded without fear of favour by saying that:

  1. Cash budgeting is an important public and private sector management decision tool. It is used to allocate resource among various users.
  2. That the performance of the instrument, though not 100% efficient especially as regards the public sector is encouraging.

The researcher finally concluded that “cash budgeting as a basis for decision making was and is still a managerial instrument.


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