Cash budget comes under the category of financial budget. It is prepared to calculate budgeted cash flows (inflows and outflows) during a specific period of time. Cash budget is useful in determining the optimum level of cash to avoid excessive cash or shortage of cash, which may arise in future.
With the help of cash budget, we can arrange cash through borrowing funds in case of shortage, and we may invest cash if it is present in excess.
It is necessary for every business to keep a safe level of cash. Being a part of master budget, the following tasks are included in a cash budget:
● Collection of Cash
● Cash Payments
● Selling Expenses and administrative expensive budget
Format
If a firm wants to maintain cash balance of Rs 50,000 and in case of shortage the firm borrows funds from Bank, following cash budget is prepared:
| Particulars | Q-1 | Q-2 | Q-3 | Q-4 | Total |
| (Yearly) | |||||
| Opening Cash Balance | 40,000 | 50,000 | 50,000 | 50,500 | 40,000 |
| Add; Cash receipts | 80,000 | 1,00,000 | 90,000 | 1,25,000 | 3,95,000 |
| Total available Cash (A) | 1,20,000 | 1,50,000 | 1,40,000 | 1,75,500 | 4,35,000 |
| Less: Cash Payments: | |||||
| Direct Material | 30,000 | 40,000 | 38,000 | 42,000 | 1,50,000 |
| Direct Labour | 12,000 | 15,000 | 14,000 | 16,000 | 57,000 |
| Factory Overheads | 18,000 | 19,000 | 17,000 | 20,000 | 74,000 |
| Administrative Expenses | 16,000 | 16,000 | 16,000 | 16,000 | 64,000 |
| Selling & Distribution Exp. | 9,000 | 10,000 | 11,000 | 12,000 | 42,000 |
| Purchase of Fixed Assets | – | – | 40,000 | – | 40,000 |
| Total Cash Payments (B) | 85,000 | 1,00,000 | 1,36,000 | 1,06,000 | 4,27,000 |
| Cash in hand C (A-B) | 35,000 | 50,000 | 4,000 | 69,500 | 8,000 |
| Financing Activities: | 15,000 | – | 50,000 | – | 65,000 |
| Borrowings | – | -3,000 | -18,000 | -21,000 | |
| Repayments of Borrowings | – | -500 | -1,500 | -2,000 | |
| Interest paid | |||||
| Net Cash Flows from financing | 23,000 | 0 | 46,500 | -19,500 | 50,000 |
| Activities ( D) | |||||
| Closing Cash Balance E (C+D) | 58,000 | 50,000 | 50,500 | 50,000 | 50,000 |
