Cash Budget

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(C) How a cash budget is prepared.
Cash budget is prepared by companies to estimate the inflows and outflows of cash during a period. Cash budget helps companies to identify whether it will face a cash problem in the future or whether it will have too much money that is not being utilized. It is essentially beneficial for small and medium-sized companies to prepare this cash budget. Usually, cash budgets are prepared for a short time such as weekly, monthly or quarterly. The motive of the cash budget is to match the cash receipts of a company with its cash expenses. Step 1

Add all cash expenses made over a period of time, such as one to three months, to your expenses ledger. Of course, you should be doing so already. If you have, you can work backward from your current records and proceed immediately to the next step. Step 2

Tally up the total amount of such expenditures made on a weekly or monthly basis, and average them out over the period you are considering. For example, if your cash expenditures over a three-month period are $157, $318, and $98, your average expenditures over this time are $191 per month. Step 3

Determine whether any payments currently are being made with cash should be made with a more formal payment system. If your business makes recurring cash payments of large amounts then these should not be accounted from the cash drawer, even if you continue to make these payments in cash.

Step 4
Decide whether you want your budget to simply track your expenses, or if you want to set a hard limit on the amount of money spent from the cash drawer. If you are just tracking expenses, use the monthly average as your budget amount. If you wish to set a hard limit, determine what hard limit to use based on your prior amounts. For example, some businesses may consider $318 in one month to be acceptable, and may budget for $300 a month as a hard limit--others may use this accounting to say that this is too much, and set $200 as their hard limit....
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