What is a Cash Budget?
To say that making of a cash budget is an essential management function. But, How to prepare cash budget? A cash budget may safeguard a corporation from being unready for seasonal fluctuations in cash in or out flow or set a company to take advantage of unanticipated quantity discounts from vendors.
Understanding: A cash budget is an executive plan for the most key factor of a company’s cash position. A company’s cash position establishes how vendors will be given, how the banker will take action to a loan demand, how rapidly a business can develop etc and raises owner’s equity, and profitability.
After the preceding budgets have been developed, a cash budget can be constructed. The cash budget may be the most important schedule prepared during the budgeting process because, without cash, a company cannot survive.
How to prepare Cash Budget?
The following is the model as to how to prepare cash budget. The following model can be used to summarize cash receipts and disbursements in a way that assists managers to devise appropriate financing measures to meet company needs.
Cash Budget Example
Beginning cash balance XXX
Cash receipts (collections) XXX
Cash available for disbursements exclusive of financing XXX
Cash needed for disbursements (purchases, direct labor, overhead, S&A, taxes, bonuses, etc.) (XXX)
Cash excess or deficiency (a) XXX
Minimum desired cash balance (XXX)
Cash needed or available for investment or repayment XXX
Financing methods:
Borrowing (repayments) XXX
Issue (reacquire) capital stock XXX
Sell (acquire) investments or plant assets XXX
Receive (pay) interest or dividends XXX
Total impact ( or ) of planned financing (b) XXX
Ending cash balance (c), where [(c) = (a) - (b)] XXX
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