Cash Budgeting

Cash is needed not only for paying everyday expenditure but lacking cash, we can not purchase any fixed assets also. Excellent planning of cash will make us easy to hold our expenditures and proper spending. The plan which helps us to use cash systematic way is called cash budget. Technique of making cash budget is called cash budgeting. In cash budgeting, we add all estimated cash which we receive from others in future and deduct all estimated cash which we have to pay for removing our liabilities. Its difference will shows estimated cash which will be our pocket. After spending of year, we compare this cash budget with actual receipt and payments. If our real cash receipt is more than budgeted cash receipt then this will be our favorable position. On the other hand, if budget cash receipt is more than actual, then this will be unfavorable position. We can also evaluate budgeted payments with actual payment.

Cash Budgeting Vs Cash Flow Analysis

Cash budgeting is different from cash flow analysis because cash budgeting is comparison between actual and estimated cash inflow and cash outflow but in cash flow analysis, we make cash flow statement and compare current year cash inflow and outflow with previous year cash inflow and cash outflow.

Importance of Cash Budgeting

Like working capital management, cash budgeting is the tool of finance. In finance, cash budgeting will control inflow and outflow of cash fund. You can plan how to pay and when to pay your expenses. With this you can increase your future ability to pay your debts. This following cash budget clears that we will make plan according to cash which we will receive in future from our debtors and cash sale and after deducting future expenses, the balance amount will show as closing balance of cash. But this is just estimation which is useful for future planning.






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Accounting Education: Cash Budgeting
Cash Budgeting
Accounting Education
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