Cash Budget

A cash budget is a financial planning tool that helps businesses forecast their cash inflows and outflows over a specific period of time. It is used to ensure that the business has enough cash on hand to meet its obligations and to make informed decisions about its spending.

The cash budget is typically prepared on a monthly basis, but it can be prepared for any time period that is relevant to the business. It is based on the business's historical cash flows and its expected future cash flows.

The cash budget includes the following information:

• Cash receipts: This includes all sources of cash inflow, such as sales, collections from customers, and interest income.
• Cash disbursements: This includes all sources of cash outflow, such as expenses, debt payments, and capital expenditures.
• Net cash flow: This is the difference between cash receipts and cash disbursements.
• Beginning cash balance: This is the amount of cash that the business has at the beginning of the budget period.
• Ending cash balance: This is the amount of cash that the business expects to have at the end of the budget period.

The cash budget is used to identify potential cash shortages or surpluses. If the business is expecting a cash shortage, it can take steps to reduce its cash outflows or increase its cash inflows. If the business is expecting a cash surplus, it can use the money to invest or to pay down debt.

The cash budget is an important tool for cash management. It helps businesses to ensure that they have enough cash on hand to meet their obligations and to make informed decisions about their spending.

Here are some additional tips for creating a cash budget:

• Start by gathering all of the information you need, such as your historical cash flows and your expected future cash flows.
• Be realistic about your cash inflows and outflows.
• Review your cash budget regularly and make adjustments as needed.
• Use the cash budget to help you make informed decisions about your business.

The cash budget is a valuable tool for cash management. By using it, you can ensure that your business has enough cash on hand to meet its obligations and to make informed decisions about its spending.