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.
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.