Cash Budget

Cash budget is a financial budget prepared to calculate the budgeted cash inflows and outflows during a period and the budgeted cash balance at the end of the period. Cash budget helps the managers to determine any excessive idle cash or cash shortage that is expected during the period. Such information helps the managers to plan accordingly. For example if any cash shortage in expected in future, the managers plan to change the credit policy or to borrow money and if excessive idle cash is expected, they plan to invest it or to use it for the repayment of loan.

All businesses need to maintain a safe level of cash to enable them to carry on business activities. The managers of a business need to determine that safe level. The cash budget is then prepared by taking into consideration, that safe level of cash. Thus, if a cash shortage is expected during a period, a plan is made to borrow cash.

Cash budget is a component of master budget and it is based on the following components of master budget:

Schedule of expected cash collections
Schedule of expected cash payments
Selling and administrative expense budget

Format and Example

The following example illustrates the format of cash budget. Company A maintains a minimum cash balance of $5,000. In case of a deficiency, loan is obtained at 8% annual interest rate on the first day of the period.

Company A
Cash Budget
For the Year Ending December 30, 2010
Beginning Cash Balance$5,200$5,000$5,000$11,740$5,200
Add: Budgeted Cash Receipts:37,15054,19053,73062,300207,370
Total Cash Available for Use$42,350$59,190$58,730$74,040$212,570
Less: Cash Disbursements     
Direct Material14,96016,55016,81019,41067,730
Direct Labor8,8309,6109,75011,90040,090
Factory Overhead10,02010,40011,00011,78043,200
Selling and Admin. Expenses7,6408,3608,5009,61034,110
Equipment Purchases 6,000 14,00020,000
Total Disbursements$41,450$50,920$46,060$66,700$205,130
Cash Surplus/(Deficit)$900$8,270$12,670$7,340$7,440
Borrowing4,100   4,000
Repayments −3,188−912 −4,000
Interest −82−18 −100
Net Cash from Financing$4,100−$3,270−$930 −100
Budgeted Ending Cash Balance$5,000$5,000$11,740$7,340$7,340

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