Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

Which one of the following allows a firm to plan its short-term cash needs?

1. Budget forecast

2. Cash flow statement

3. Cash Budget

4. Operational plan

The correct answer is: Cash Budget

A cash budget is specifically designed to project and manage a firm's short-term cash needs over a certain period, typically monthly or quarterly. It outlines expected cash inflows and outflows, enabling a business to plan for periods of surplus or shortfall. By analyzing the cash budget, a firm can determine whether it has enough liquidity to meet its obligations, such as paying suppliers or covering operational expenses. In contrast, a budget forecast generally encompasses a broader scope, covering various aspects of financial performance beyond just cash flow, making it less focused on immediate cash requirements. A cash flow statement provides historical data on actual cash flows, which is helpful for assessing past performance but does not facilitate proactive planning for future cash needs. An operational plan outlines the strategic initiatives and goals of the business but lacks the specific focus on cash management needed to understand short-term liquidity. Thus, a cash budget is the most appropriate tool for planning short-term cash needs.