Legal Definitions - cash budget

A cash budget is a financial plan that outlines a business's expected cash inflows and outflows over a specific period. It is a period-by-period schedule that shows the opening cash balance, estimated cash receipts, cash disbursements, and closing cash balance.

For example, let's say a business wants to create a cash budget for the next quarter. They estimate that they will have $10,000 in cash at the beginning of the quarter. They also expect to receive $50,000 in cash from sales and $5,000 in cash from other sources. Their estimated cash disbursements for the quarter include $30,000 for inventory, $10,000 for rent, $5,000 for utilities, and $5,000 for salaries. Based on these estimates, the business's closing cash balance for the quarter would be $15,000.

The purpose of a cash budget is to help businesses manage their cash flow effectively. By forecasting their cash inflows and outflows, businesses can identify potential cash shortages and take steps to address them before they become a problem. For example, if a business's cash budget shows that they will have a cash shortfall in a particular month, they may decide to delay a purchase or negotiate better payment terms with their suppliers.