Cash budget
A cash budget is a document produced to help a business manage their cash flow. A cash budget is prepared in advance and shows all the planned monthly cash incomings (receipts) and any planned cash outgoings (payments).
Preparing a cash budget has a number of benefits:
- It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraftAn agreement with the bank to overspend on an account. .
- It can help to regulate expenses. Any months where expenses are high will be highlighted by a cash budget.
- It will clearly show where a business has more cash than expected (surplusA positive balance. This will happen when receipts are greater than payments.) or less cash than expected (deficitA negative balance. This will happen when payments are greater than receipts.). This will allow a business to plan more effectively and make better decisions.
A cash budget is shown below:
| Cash budget for Jill'鈥's beauty salon for January - March | |||
| January (拢) | February (拢) | March (拢) | |
| Opening balance | 4, 000 | 2, 500 | 200 |
| Receipts | |||
| Sales | 3, 000 | 3, 000 | 4, 000 |
| Subtotal | 7, 000 | 5, 500 | 4, 200 |
| Payments | |||
| Purchases | 1, 000 | 800 | 800 |
| Electricity | 500 | 500 | 500 |
| Rent | 1, 000 | 1, 000 | 1, 000 |
| Wages | 2, 000 | 3, 000 | 2, 000 |
| Subtotal | 4, 500 | 5, 300 | 4, 300 |
| Closing balance | 2, 500 | 200 | -100 |
| Cash budget for Jill'鈥's beauty salon for January - March | Opening balance |
|---|---|
| 4, 000 | |
| 2, 500 | |
| 200 |
| Cash budget for Jill'鈥's beauty salon for January - March | |
|---|---|
| Cash budget for Jill'鈥's beauty salon for January - March | Receipts |
|---|---|
| Cash budget for Jill'鈥's beauty salon for January - March | Sales |
|---|---|
| 3, 000 | |
| 3, 000 | |
| 4, 000 |
| Cash budget for Jill'鈥's beauty salon for January - March | Subtotal |
|---|---|
| 7, 000 | |
| 5, 500 | |
| 4, 200 |
| Cash budget for Jill'鈥's beauty salon for January - March | |
|---|---|
| Cash budget for Jill'鈥's beauty salon for January - March | Payments |
|---|---|
| Cash budget for Jill'鈥's beauty salon for January - March | Purchases |
|---|---|
| 1, 000 | |
| 800 | |
| 800 |
| Cash budget for Jill'鈥's beauty salon for January - March | Electricity |
|---|---|
| 500 | |
| 500 | |
| 500 |
| Cash budget for Jill'鈥's beauty salon for January - March | Rent |
|---|---|
| 1, 000 | |
| 1, 000 | |
| 1, 000 |
| Cash budget for Jill'鈥's beauty salon for January - March | Wages |
|---|---|
| 2, 000 | |
| 3, 000 | |
| 2, 000 |
| Cash budget for Jill'鈥's beauty salon for January - March | Subtotal |
|---|---|
| 4, 500 | |
| 5, 300 | |
| 4, 300 |
| Cash budget for Jill'鈥's beauty salon for January - March | |
|---|---|
| Cash budget for Jill'鈥's beauty salon for January - March | Closing balance |
|---|---|
| 2, 500 | |
| 200 | |
| -100 |
The main items shown on a cash budget are:
- Opening balance - This is the amount of money you have available at the beginning of the month. It is the same amount as the closing balance from the month before. Eg, in the table above the opening balance for February is 拢2, 500. This is the same as the closing balance for January.
- Receipts 鈥 This is a list of all the money coming into the business such as sales or rent received. Eg, in the table above the receipts for January are 拢3, 000.
- Payments 鈥 This is a list of all money you expect to go out of your business such as rent, wages or electricity. Eg, in the table above the payments for March are 拢4, 300.
- Closing balance 鈥 This is the cash left at the end of the month after all payments have been taken away from the business receipts. Eg, in the table above the closing balance for March is -拢100. This is a negative number as more money has gone out than has come in.