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Cash budget is a review or projection of cash inflows and outflows. It can

be used as a tool for analyzing the revenues and costs of a company or
A cash budget is a planning tool used by companies and individuals to
evaluate projected cash flows during a specified period of time (e.g.
monthly, quarterly, annually).
For example, if a company's cash budget forecasts itemized inflows
(income) of $1,000,000 and itemized cash payments (expenses) of
$800,000, management can feel fairly certain that it will have enough
cash to pay all of its bills
A cash budget allows companies and individuals to
evaluate income versus expenses. Managing cashresources is the first
step toward growing a company or individual's bottom line. Moreover,
lending institutions may use a cash budget to help determine whether or
not to grant a loan or extend credit to a company of individual, which
makes monitoring cash flow even more important.
The cash budget contains an itemization of the projected sources and uses of cash in a future
period. This budget is used to ascertain whether company operations and other activities will
provide a sufficient amount of cash to meet projected cash requirements. If not, management must
find additional funding sources.
The inputs to the cash budget come from several other budgets. The results of the cash budget are
used in the financing budget, which itemizes investments, debt, and both interest income and
interest expense
The cash budget is comprised of two main areas, which are Sources of Cash and Uses of Cash. The
Sources of Cash section contains the beginning cash balance, as well as cash receipts from cash
sales, accounts receivable collections, and the sale of assets. The Uses of Cash section contains all
planned cash expenditures, which comes from the direct materials budget, direct labor
budget, manufacturing overhead budget, and selling and administrative expense budget. It may
also contain line items for fixed asset purchases and dividends to shareholders.

If there are any unusually large cash balances indicated in the cash budget, these balances are
dealt with in the financing budget, where suitable investments are indicated for them. Similarly, if
there are any negative balances in the cash budget, the financing budget indicates the timing and
amount of any debt or equity needed to offset these balances.

An estimation of the cash inflows and outflows for a business or individual for
a specific period of time. Cash budgets are often used to assess whether the
entity has sufficient cash to fulfill regular operations and/or whether too much
cash is being left in unproductive capacities.


An estimation of the cash inflows and outflows for a business or
individual for a specific period of time. Cash budgets are often used
to assess whether the entity has sufficient cash to fulfill regular
operations and/or whether too much cash is being left in
unproductive capacities.


A cash budget is extremely important, especially for small
businesses, because it allows a company to determine how much
credit it can extend to customers before it begins to
have liquidity problems.
For individuals, creating a cash budget is a good method for
determining where their cash is regularly being spent. This
awareness can be beneficial because knowing the value of certain
expenditures can yield opportunities for additional savings by
cutting unnecessary costs.
For example, without setting a cash budget, spending a dollar a day
on a cup of coffee seems fairly unimpressive. However, upon setting
a cash budget to account for regular annual cash expenditures, this
seemingly small daily expenditure comes out to an annual total of
$365, which may be better spent on other things. If you frequently
visit specialty coffee shops, your annual expenditure will be
substantially more.
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Example of the Cash Budget

Here is an example of the cash budget, showing the sources and uses of cash by week:
Everson Manufacturing
Cash Budget
Week 1

Week 2

Week 3

Week 4
























- Direct labor





- Manufacturing overhead





- Selling & administrative





- Asset purchases




= Total uses of cash





Net Cash Position





Beginning cash
Sources of Cash
+ Cash sales
+ Accounts receivable collected
+ Asset sales
= Total cash available
Uses of Cash
- Direct materials

- Dividend payments

The example shows that an inordinately large dividend payment in the second week of the cash
budget, coupled with a large asset purchase in the following week, places the company in a
negative cash position. Paying out such a large dividend can be a problem for lenders, who do not
like to issue loans so that companies can use the funds to pay their shareholders and thereby
weaken their ability to pay back the loans. Thus, it may be wiser for the company to consider a
small dividend payment and avoid a negative cash position.
Other Cash Budget Issues

Cash balances may fluctuate considerably within a single accounting period, thereby masking cash
shortfalls that can put a company in serious jeopardy. To spot these issues, it is quite common to
create and maintain cash forecasts on a weekly basis. Though these short-term budgets are
reasonably accurate for perhaps a month, the precision of forecasting declines rapidly thereafter,
so many companies then switch to budgeting on a monthly basis. In essence, a weekly cash
budget begins to lose its relevance after one month, and is largely inaccurate after two months.
Related Topics
Budgeted balance sheet
Budgeted income statement
Ending finished goods budget
Master budget
Production budget
Sales budget