What is a Cash Budget?

Cash budget is a budget that plans in more detail about the amount of cash along with changes from time to time during the coming period, both changes in the form of cash requests, as well as changes in the form of cash disbursements.

Cash budget is an important tool in the process of financial planning and control of the company, because in it there is an estimate of cash receipts and disbursements for a certain period in the future so that it will be known when the company is in a state of cash deficit or cash surplus.

The Purpose of the Cash Budget

To find out the state of a company’s cash surplus or deficit as follows:

  1. The tool monitors the cash situation continuously.
  2. Adjust cash with total working capital, costs, sales revenue and debt.
  3. Provide an overview of the final cash position for each period of its operational activities.
  4. Find cash shortages and excesses, and determine the financing needs of excess cash for investments .
  5. Measuring success over targets that have been made.
  6. Tool to coordinate and integrate activities.

How to Make a Cash Budget

There are ways to prepare a cash budget as follows:

  1. Calculating Cash Receipts
    In general, cash receipts come from:
    – Collection of receivables
    – Cash sales
    – Sales of fixed assets
    – Other receipts (non-operating), for example interest
    income, rental income, dividend income and so on.
  2. Calculating Cash Expenditures Cash
    expenditures incurred in a company are usually in the form of expenses, both main costs (operating) and non-main costs (non-operating). Example:

– Purchase of raw materials in cash

– Payment of debt

– Payment of direct labor wages

– Payment of indirect factory costs

– Payment of administrative costs

– Payment of sales fees

– Purchase of fixed assets

– Other payments such as interest, rent, etc.

  1. Cash Budget Arrangement
    After calculating the income and expenses that occur, then you can compile a cash budget. Arrange the balance between expenditure and cash receipts. However, it would be better if expenses were smaller than the incoming revenues, so the financial condition would experience a surplus.

That’s the review of the cash budget. The cash budget will run well if supported by good financial management.


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