Cash budget

Definition

A cash budget is a financial plan that estimates cash inflows and outflows over a specific period. It helps businesses manage liquidity, ensuring they have enough cash to meet obligations.

5 Must Know Facts For Your Next Test

1. A cash budget helps identify periods of cash surplus or deficit.
2. It assists in planning for short-term borrowing or investing excess cash.
3. Cash budgets are typically prepared on a monthly or quarterly basis.
4. Important components include projected sales, expenses, and financing activities.
5. Effective cash budgeting can improve a company’s overall financial stability.

Review Questions

• What is the primary purpose of a cash budget?
• How can a cash budget help in managing short-term financial needs?
• What are the main components included in a cash budget?

Related terms

Working Capital:

The difference between current assets and current liabilities, indicating the liquidity position of a business.

Trade Credit:

An arrangement where customers can purchase goods on account, paying the supplier at a later date.

Liquidity:

The ability of an organization to meet its short-term obligations using its most liquid assets.