Cash Budget

A cash budget is one of the most important tools of short-term financial planning, as it provides a detailed forecast of an organization’s expected cash position over a defined period such as a month, quarter, or year. It focuses specifically on the inflow and outflow of cash, unlike other budgets that may include non-cash items such as depreciation or accruals. The preparation of a cash budget helps management anticipate future cash requirements and ensures that sufficient funds are available to meet obligations like salaries, supplier payments, taxes, and loan repayments. At the same time, it highlights periods when excess cash may be available, allowing the business to plan for investments or expansion opportunities.

Objectives of Cash Budget

It helps management to forecast periods of cash surplus or shortage in advance, thereby enabling effective planning for short-term financing or investments. By anticipating future cash requirements, a cash budget assists in arranging funds through loans or overdrafts when needed and also provides opportunities to utilize excess cash efficiently, such as investing in short-term securities or repaying liabilities early. Ultimately, the cash budget aims to promote sound financial discipline, prevent cash crises, and support better decision-making in day-to-day business operations.