Cash budget

Definition

A cash budget is a financial plan that estimates cash inflows and outflows over a specific period. It helps businesses manage their cash needs and ensure they have sufficient liquidity to meet obligations.

5 Must Know Facts For Your Next Test

1. Cash budgets typically cover monthly, quarterly, or annual periods.
2. They help in identifying periods of surplus or deficit in cash flow.
3. Cash budgets include projections for operating activities, investing activities, and financing activities.
4. They are essential for ensuring that a company can meet its short-term financial commitments.
5. Cash budgets play a crucial role in strategic planning and decision-making.

Review Questions

• What are the main components included in a cash budget?
• How does a cash budget help in managing liquidity?
• Why is it important to forecast both cash inflows and outflows accurately?

Related terms

Operating Budget:

A detailed projection of all income and expenses based on forecasted sales revenue during a given period.

Capital Expenditure Budget:

A plan for spending on major physical assets such as buildings, machinery, or technology over time.

Master Budget:

A comprehensive financial planning document that includes all smaller budgets within an organization’s overall strategy.