When is a cash flow budget a useful alternative to a comprehensive budget? Answer in approximately 250 words.
First, let’s see what these terms mean. According to Seagal and Yacht (2009), a comprehensive budget includes each area of a financial plan and lets us estimate incomes and expenses. The capital budget and operating budget are two levels of the comprehensive budget.
To meet short-term plans, we need to have a good balance between monthly expenses and income. To do so, we can use the operating budget which can give us an evaluation of cash flows over a specified period. To achieve long-term goals, we need to observe our long-term finances and can use the capital budget for it. (Tuovila, 2019).
According to Seagal and Yacht (2009), a cash flow budget reflects the inflow of income. It can show us whether we will have enough money to spend. There are several advantages: you will be able to adjust expenses and identify scarcity to be able to manage deficits. It will be even more useful compared to a comprehensive budget when we need to see the sources from which money comes. It also shows the information in a clearer way and makes it easier to see opportunities and risks.
References
Siegal R., Yacht C. (2009). Personal Finance. Saylor Foundation, retrieved from https://my.uopeople.edu/pluginfile.php/1566613/mod_folder/content/0/68053-piy-ch01-01.pdf_161160.pdf?forcedownload=1
Tuovila A. (8 February, 2021). Cash budget. Retrieved from https://www.investopedia.com/terms/c/cashbudget.asp