What is a Cash Budget?

Cash budget is a review or projection of cash inflows and outflows. It can be used as a tool for analyzing the revenues and costs of a company or individual.

How Does a Cash Budget Work?

A cash budget is a planning tool used by companies and individuals to evaluate projected cash flows during a specified period of time (e.g. monthly, quarterly, annually).

For example, if a company's cash budget forecasts itemized inflows (income) of $1,000,000 and itemized cash payments (expenses) of $800,000, management can feel fairly certain that it will have enough cash to pay all of its bills.

Why Does a Cash Budget Matter?

A cash budget allows companies and individuals to evaluate income versus expenses. Managing cash resources is the first step toward growing a company or individual's bottom line. Moreover, lending institutions may use a cash budget to help determine whether or not to grant a loan or extend credit to a company of individual, which makes monitoring cash flow even more important.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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