What is a Cash Budget?

Definition: A cash budget is a budget or plan of expected cash receipts and disbursements during the period. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payments. In other words, a cash budget is an estimated projection of the company’s cash position in the future.

What Does Cash Budget Mean?

Management usually develops the cash budget after the sales, purchases, and capital expenditures budgets are already made. These budgets need to be made before the cash budget in order to accurately estimate how cash will be affected during the period. For example, management needs to know a sales estimate before it can predict how much cash will be collected during the period.

Management uses the cash budget to manage the cash flows of a company. In other words, management must make sure the company has enough cash to pay its bills when they come due. For instance, payroll must be paid every two weeks and utilities must be paid every month. The cash budget allows management to predict short falls in the company’s cash balance and correct the problems before payments are due.


Likewise, the cash budget allows management to forecast large amounts of cash. Having large amounts of cash sitting idle in bank accounts is not ideal for companies. At the very least, this money should be invested to earn a reasonable amount of interest. In most cases, excess cash is better used to expand and develop new operations than sit idle in company accounts. The cash budget allows management to predict cash levels and adjust them as needed.