What is Cash Budget? (All You Need to Know)

July 27, 2022

What is Cash Budget? (All You Need to Know)

Budgeting can sometimes be confusing, but when you understand how it works, then it’s all really quite simple and straightforward. In this brief article we will explain everything you need to know about cash budgets, including the objective of a cash budget, why this type of budget is important, and most importantly, how to calculate an accurate cash budget for your business.

What is cash budget and why is it important?

A cash budget is a cash flow statement that shows the projected cash inflows and outflows for a company’s business activities during a specific period of time. It is also known as the operating or working capital budget.

Cash budgets are important because they help businesses plan their cash inflows and outflows. A well-prepared cash budget will enable you to manage your cash flow effectively, thereby allowing you to take actions to improve your company’s financial health.

What is the main objective of cash budget?

The main objective of cash budget is to help a business plan its cash flow for the coming period. The detailed cash budget shows how much money will be received, where it will come from and when it will be received.

Cash budgeting helps a business to:

1. Plan their cash requirements in advance.

2. Keep track of the business's cash position on a daily basis.

3. Monitor the use of cash by departments or functions within the organisation.

4. Make sure that bills are paid on time and that there are enough funds available to meet unexpected expenses without having to borrow money from elsewhere in the organisation (e.g., overdraft facility).

What are the types of cash budget?

Cash budget is a forecast of cash inflows and outflows for a given period. It can be prepared for a month, quarter, or year. Cash budget is an important tool for monitoring and controlling the cash position of any business. Cash budget can also be used to gauge the amount of working capital required to finance operations.

There are many cash budget example, but to understand this concept properly, let’s consider the different types of cash budgets, and see how they are used by accountants.

There are three types of cash budgets:

1. Operating cash budget – It is used for forecasting of cash requirements for day-to-day activities such as paying wages, salaries, interest on loans etc.

2. Capital expenditure budget – It is used to estimate the amount of funds required for fixed assets purchases like machinery or buildings etc.

3. Cash flow statement – It helps in forecasting future cash flows from operating and investing activities and their sources (sources include operating profits, interest receivable and dividends).

What is cash budget formula?

Cash budget formula is the calculation of cash flow. It is used to forecast the cash flow from a company's operating activities, financing activities and investment in new capital equipment. The cash budget formula is also known as the Cash Flow Forecast, Cash Flow Statement or Cash Flow Budget.

The cash budget formula can be calculated using the following steps:

1. Calculate total revenue for the period

2. Calculate total expenses for the period using an accrual basis of accounting

3. Calculate net income or loss for the period (revenue less expenses)

4. Calculate net change in cash position during the period by subtracting beginning-of-period cash balance from ending-of-period cash balance

Net Change in Cash Position = Beginning-of-period balance + Net income or loss


A cash budget is a forecast of expected income and expenses. It helps you track your cash flow and make better decisions about your business.

A good cash budget will help you:

·   Know what money is coming in and going out of your business.

·   Plan for future costs or investments.

·   Stay within your budgeted amount of cash.

All things considered; cash budget accounting is relatively easy as long as you remember the cash budget formula when preparing your cash budget statement.


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