A:

To use the cash flow statement to make a budget, a company needs to combine the operating cash flow portion of its cash flow statement with its cash budget. A company's cash budget and its operating cash inflows of its cash flow statement are not the same, but they are closely related and are both needed to create a comprehensive budget.

Cash Budget

A cash budget measures the amount of available cash a company has at its disposal to pay its short-term operating costs. The overall amount of the cash budget is determined by the amount of operating cash a company has left over after paying its monthly bills.

Operating Cash Inflow

The operating cash inflow portion of a company's cash flow statement is the second component to creating an effective budget. A company's operating cash inflows provide an indication of all the available cash that comes into the company from various sources. Cash paid by customers for goods and services, accounts receivable collections, and goods and services that can be easily liquidated for cash are all examples of sources of operating cash.

Together, a company's cash budget and the operating cash inflow portion of its cash flow statement provide a good indication of the amount of cash the company has available to spend over a specific time period. The two combine to let a company know how much cash is available to it at the end of each time period, and it is the maximum amount it can spend without needing to borrow money or raise financing.

The cash budget and operating cash inflow are essentially the overall budget of a company. The total available funds are allocated between different departments or cost centers as the managers see fit.

RELATED FAQS
  1. How should I evaluate a company with negative cash flow investing activities?

    Negative cash flow from investing activities should be evaluated since it could be a warning sign. However, it can also mean ... Read Answer >>
  2. What is the difference between a cash flow statement and an income statement?

    Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
  3. How can cash flows be manipulated or distorted?

    Cash flows can be manipulated or distorted in many ways, including changing accounts payable, misusing non-operating cash, ... Read Answer >>
  4. How are cash purchases recorded on a company's income statement?

    Take a deeper look at the treatment of cash payments on a company's financial statements, including how specific purchases ... Read Answer >>
  5. What's more important, cash flow or profits?

    Learn about the different effects of cash flow and profit have on a business and how you can use the information for your ... Read Answer >>
Related Articles
  1. Investing

    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.
  2. Tech

    Cash Flow Is King: How to Keep it Running

    Why is cash flow so important, and what steps can a business take to improve it?
  3. Small Business

    Understanding Cash Flow

    Learn about the different types of cash flows and the importance for businesses to properly manage their cash flows.
  4. Personal Finance

    10 Reasons People Don’t Create a Budget

    Don't avoid putting together a budget, an essential part of a personal financial plan, for these reasons.
  5. Personal Finance

    Here's How to Create a Successful Budget

    Break your expenses into needs, wants, and savings goals for a budget plan you can stick to.
RELATED TERMS
  1. Cash Flow

    Cash flow is the net amount of cash and cash-equivalents being ...
  2. Cash Flow From Investing Activities

    Cash flow from investing activities reports the total change ...
  3. Cash Budget

    A cash budget is an estimation of the cash inflows and outflows ...
  4. Cash Per Share

    Cash flow per share is the broadest measure of available cash ...
  5. Cash Flow From Operating Activities (CFO)

    Cash Flow From Operating Activities (CFO) nindicates the amount ...
  6. Operating Cash Flow (OCF)

    Operating Cash Flow (or OCF) is a measure of the amount of cash ...
Trading Center