The Cash Budget

What information is needed in order to prepare a cash budget? What is the relationship between an operating budget and a cash budget?

There are four main parts needed to prepare a cash budget with include: cash receipts, cash disbursements, net change in cash for the period, and new financing needed. The cash budget is primarily used to control cash flow for a specific period of time. Companies need to know what there cash receipts will be for a specific period of time to determine if additional financing will be needed to cover their expenses. The operating budget is a prediction of the revenue and expenses from the company's main operations over a set period of time. Some of the items you would find on the operating budget would be cost of goods sold, supplies, rent, etc. These items are directly related to the cost of operating the business and are essential for financial managers to know. This is related to the cash budget because cash flow will need to be determined if these expenses will be sufficiently covered. If not, the company will need to arrange additional financing. Since "cash is king" it is always important to know if there will be sufficient cash flow to cover expenses. Even profitable companies can become insolvent due to a lack of cash flow.