A cash budget is a forecast of estimated cash receipts and payments over a period, such as a month or week. It is important as it allows companies to predict and address possible cash shortages before a crisis. A cash budget also helps identify timing of commitments, periods of excess funds, and weaknesses in debt collection. To prepare a cash budget, all estimated cash inflows such as sales, loans, and asset sales are recorded, as well as estimated cash outflows like expenses, principal payments, and capital expenditures. The cash budget is then used to forecast the ending cash balance for each period.

1. Presented By:
Jagannath Das
Eastern Institute of management

2. What is cash budget?
A cash budget is a forecast of estimated cash receipts,
estimated cash payments and the resultant cash
position for a certain period of time.
Done on a shorter time frame than
other statements.
(i.e., month-by-month or even week-
by week).

3. Why is a cash budget important?
Allows companies to predict possible cash shortages
and take corrective action before a crisis occurs.
Allows companies to see if large sums of excess cash
are lying idle—could be put to better use.

4. Assists with the identification of when commitments
are due.
Reveals periods of excess funds
Reveals weaknesses in business’s debt
collection
policy
Adjustments for seasonal fluctuations can be
made

5. Budgets are a form of control
Budget reveals periods when shortages
of funds may occur

6. Preparation of cash budget.
Receipts and payments method: under this method all
the cash receipts and payments expected during the
budget period is considered. However care must be
taken to ensure that cash adjustments and accruals are
not shown in cash budget.

7. Cash Inflows
Sales and other cash income
New loans received
Sales of capital assets
Nonfarm income
Beginning cash on hand

8. Cash Outflows
Cash expenses
Principal payments
Purchase of capital assets
Nonfarm expenses
Ending cash on hand

9. Depreciation
Opportunity costs
Any other non-cash income
or expense
Do not include:

10. From the following data prepare cash budget for the 3months
commencing 1st june, 1996, when the bank balance was Rs.100000.
Month sales purchases wages production exp. adm.exp
(Rs) (Rs) (Rs) (Rs) (Rs)
April 80000 41000 5600 3900 10000
May 76500 40500 5400 4200 14000
June 78500 38500 5400 5100 15000
July 90000 37000 4800 5100 17000
August 95000 35000 4700 6000 13000
There is two month credit period allowed to customers and received
from suppliers. Wages production expenses and administration
expenses are payable in the following months.

11. Cash budget from june to august 1996
June July August
Opening balance 100000 115400 125900
Add:receipts:
Collection from debtors 80000 76500 78500
180000 191900 204400
Less:payments
Paid to creditors 41000 40500 38500
Wages 5400 5400 4800
Production exp. 4200 5100 5100
Administration exp. 14000 15000 17000
Closing balance 115400 125900 139000