Cash Budget

Cash Budget

A detailed forecast of cash inflows, outflows, and resulting balances for specific future periods, helping management anticipate and address potential liquidity challenges or investment opportunities.

For instance, a quarterly cash budget might project beginning cash of $50,000, cash collections from customers of $350,000, other cash receipts of $25,000, cash disbursements for materials, labor, and overhead of $280,000, capital expenditures of $75,000, and ending cash of $70,000, revealing adequate liquidity for the period.

Unlike accrual-based budgets, cash budgets focus exclusively on the timing of cash movements rather than when revenue is earned or expenses incurred. Typical components include beginning cash balance, cash receipts (customer collections, asset sales, interest income), cash disbursements (supplier payments, payroll, taxes, capital expenditures), and ending cash balance. This forecast helps identify periods of potential cash shortfalls requiring external financing or cash surpluses available for investment or debt reduction. Cash budgets typically cover shorter horizons (weekly, monthly, or quarterly) than operating budgets and require careful consideration of collection patterns, payment terms, seasonality, and timing differences between sales and collections or purchases and payments.