Cash Budget

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Annual Budget

    Any budget that is prepared for a 12-month period. An annual ...
  2. Balanced Budget

    A situation in financial planning or the budgeting process where ...
  3. Zero-Based Budgeting - ZBB

    A method of budgeting in which all expenses must be justified ...
  4. Budget

    An estimation of the revenue and expenses over a specified future ...
  5. Capital Budgeting

    The process in which a business determines whether projects such ...
  6. Debt Consolidation

    The act of combining several loans or liabilities into one loan. ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. How does quantifying fixed overhead volume variance show whether a company is profitable ...

    Fixed overhead volume cannot definitively prove a company is profitable, but it can be used to provide an excellent indication ... Read Full Answer >>
  5. What is price variance in cost accounting?

    Price variance in cost accounting is the difference between the actual price paid by a company to purchase an item and its ... Read Full Answer >>
  6. When do I need to project run rates for my business?

    A business might project a run rate if it needs to evaluate potential future outcomes. Common scenarios where a run rate ... Read Full Answer >>
Related Articles
  1. Economics

    Explaining the Cash Budget

    A cash budget is a plan for the inflows and outflows of cash for a business or an individual.
  2. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  3. Markets

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  4. Budgeting

    10 Worst And Best Vacation Cities In The U.S.

    The many costs of planning a vacation will put a stress on most people’s finances, but where you choose to go can be what really makes your travel budget.
  5. Budgeting

    Top 6 Money Management Apps For 2015

    Spenders who should be keeping better track of their cash flow will benefit the most from these money management apps.
  6. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  7. Retirement

    10 Retirement Savings Myths That Won’t Go Away

    If you’re confused about the different retirement investment vehicles or don’t know how to save for retirement, it’s important that you do your research.
  8. Professionals

    The Advantages That Older Entrepreneurs Enjoy

    Entrepreneurs typically have more experience, more collateral, and more connections when they are in their fifties, and are thus more likely to succeed.
  9. Home & Auto

    Reduce Energy Costs By Making These Adjustments

    There are several ways you can reduce energy costs. These techniques range from minor tweaks to major renovations.
  10. Investing Basics

    Explaining Fixed Income

    A person living off a fixed income is usually a retiree receiving a fixed, steady monthly inflow of cash.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center