The cash budget summarizes the anticipated cash receipts and payments for a specific period. The cash budget helps the management to make an arrangement of cash if a sufficient amount of cash is not available at the end of each month. In this way, the company can meet all the operating expenses and all other commitments. On the other hand, if excess cash is available at any time, the management can make suitable arrangements for investing outside the business. There are three methods of preparing a cash budget:1) Receipts and Payments Method:Under this method, the cash budget is prepared on a columnar basis. There are two columns. The first column is receipts and the second column is payments. The total receipts are added with the opening balance of cash and payments are deducted to get the closing balance of cash. If receipts are more than payments, there is a surplus of cash at the end of the month and if payments are more than receipts, there is a deficit of cash. 2) Adjusted Profit and Loss Method:This method is also called the cash flow statement. This type of budget is prepared for a long period. It gives details of incomes and expenses in connection with long term planning. The profit is considered to be equivalent to cash. The cash receipts and payments are not taken into consideration, only non-cash transactions are considered to prepare the cash budget under this method. The profit is adjusted by adding back depreciation, provisions, stock, work in progress, capital receipts, decrease in debtors, increase in creditors and by deducting dividends, capital payments, increase in debtors, increase in stock, and decrease in creditors. The adjusted profit is the closing balance of cash. 3) Balance Sheet Method:This method is very similar to the adjusted profit and loss method. Under this method, all the item of the balance sheet are recorded on respective sides except cash. Then, the balance sheet is balanced. If the liabilities side is heavier than the assets side, the balancing figure is cash at the bank. Likewise, if the assets side is heavier than the liabilities side, the balancing figure is an overdraft. Cash Cycle Method:Cash Cycle Method, also known as the cash conversion cycle refers to the time lag between purchasing the raw materials used to make a product and collecting the money from selling the product. It functions as a measure of liquidity: how easily can the unfinished product be turned into cash. It is not a method of preparing a cash budget. Thus, option 4 is the correct answer.