Cash Budget

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


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:

Opening Cash Balance40,00050,00050,00050,50040,000
Add; Cash receipts80,0001,00,00090,0001,25,0003,95,000
Total available Cash (A)1,20,0001,50,0001,40,0001,75,5004,35,000
Less: Cash Payments:     
Direct Material30,00040,00038,00042,0001,50,000
Direct Labour12,00015,00014,00016,00057,000
Factory Overheads18,00019,00017,00020,00074,000
Administrative Expenses16,00016,00016,00016,00064,000
Selling & Distribution Exp.9,00010,00011,00012,00042,000
Purchase of Fixed Assets40,00040,000
Total Cash Payments (B)85,0001,00,0001,36,0001,06,0004,27,000
Cash in hand C (A-B)35,00050,0004,00069,5008,000
Financing Activities:15,00050,00065,000
Borrowings -3,000-18,000-21,000
Repayments of Borrowings -500-1,500-2,000
Interest paid     
Net Cash Flows from financing23,000046,500-19,50050,000
Activities ( D)     
Closing Cash Balance E (C+D)58,00050,00050,50050,00050,000

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