Cash Budget

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What is 'Cash Budget'

Cash budget is 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.

BREAKING DOWN 'Cash Budget'

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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RELATED FAQS
  1. How can you use a cash flow statement to make a budget?

    Understand how a cash flow statement can be used to create a company budget. Learn the difference between a cash budget and ... Read Answer >>
  2. Is there a difference between the cash budget and a credit budget?

    Learn more about how cash flow is detailed in cash budgets and how credit budgets work. Find out what these budgets reveal ... Read Answer >>
  3. How is cash flow from operating activities calculated?

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  4. Why should I bother creating a budget?

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  5. What is the difference between cash flow and free cash flow?

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  6. What does the cash ratio of a company measure, and how does it affect decision making?

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