QS Study

A cash budget is one of the most important budgets prepared by a business concern as every transaction directly or indirectly deals with cash. It shows the estimate of cash receipts and cash payments from all sources over a specific period. A cash budget is an estimation of the cash inflows and outflows for a business over a specific period of time, and this budget is used to assess whether the entity has sufficient cash to operate. Management uses the cash budget to manage the cash flows of a company.

This is also called as ‘Finance Budget’.

Advantages

  1. It helps in maintaining an adequate cash balance.
  2. It provides the following useful information to the management
  • to determine the future cash needs of a business concern
  • to plan for financing those needs and
  • to have control over cash balance of the business concern.

Thus, in short, cash budget is a useful tool for financial planning.