The goal of a cash budget is to calculate required cash inflows and outflows and determine time periods when cash excesses or shortages are expected. This helps a company avoid a cash crisis and to use its cash funds rationally. Thus the cash budget is a detailed spreadsheet of expected cash inflows and payments over a given period.
- It will enable the company to make timely decisions about whether and how much money the company needs to borrow.
- The cash budget is a part of a company's master budget. Data from other budgets, including: sales, production, direct labor, etc. are used to develop the cash budget.
- The reliability of the data put into the cash budget depends on projections and forecasts; the most important are the sales forecast and the accounts receivable collection period.
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