A cash budget is one of the most important budgets prepared by a business concern as every transaction directly or indirectly deals with cash. It shows the estimate of cash receipts and cash payments from all sources over a specific period. A cash budget is an estimation of the cash inflows and outflows for a business over a specific period of time, and this budget is used to assess whether the entity has sufficient cash to operate. Management uses the cash budget to manage the cash flows of a company.
This is also called as ‘Finance Budget’.
- It helps in maintaining an adequate cash balance.
- It provides the following useful information to the management
- to determine the future cash needs of a business concern
- to plan for financing those needs and
- to have control over cash balance of the business concern.
Thus, in short, cash budget is a useful tool for financial planning.