Cash Budget


DEFINITION of 'Cash Budget'

An estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities.


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A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems.

For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs.

For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this seemingly small daily expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially more.

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  1. How does bank reconciliation affect a cash control policy?

    Bank reconciliation is a necessary process to identify potential errors, fraud or irregularities, and it enables the company ... Read Full Answer >>
  2. What is the best software for calculating the cash budget of a small business?

    A small business must continuously monitor its cash budget to ensure adequate and consistent funding of daily operations. ... Read Full Answer >>
  3. Is there a difference between the cash budget and a credit budget?

    A cash budget outlines the funds available to a business as cash flow. Cash flow may be from revenue or credit received by ... Read Full Answer >>
  4. How can you use a cash flow statement to make a budget?

    To use the cash flow statement to make a budget, a company needs to combine the operating cash flow portion of its cash flow ... Read Full Answer >>
  5. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
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