Cash Budget

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Section B
Cash Budget
Table of contents
Cash Management2
Cash budget3
Identify Cash Management4
Construction sector5


Cash management in this economic environment is crucial. Cash is the life-blood of any business. As the saying goes, “Cash is king”. With so many banks tightening credit standards due to what’s happening in the credit markets or within their own lending portfolios, it is crucial that businesses fully understand their cash needs IN ADVANCE and make adjustments to their operations to ensure that cash is available. Otherwise, companies may find themselves in a liquidity crisis –unable to meet payroll, pay suppliers, or pay subcontractors - which leads to bankruptcy or an operational shutdown.

Cash Management


Cash is used to pay company debt and meet daily operating needs. It is a current asset that includes currency, coin, paper money, money orders received from customers and travelers’ checks. Accountants define cash as money on deposit in banks and ant items that banks will accept for deposit. On the other hand, note receivable, IOUs, postdated checks (checks dated in the future), and uncollected customers, check-returned by the bank stamped “NSF” (Not Sufficient Funds) – are not accepted for immediate deposit and are not included in the accounting’s definition of cash.


Budgeting is the process of preparing a plan, commonly called a budget. A budget is a financial plan for the upcoming period. A capital budget, on the other hand, involves an organization's proposed long-range major projects. This section is focusing of budget either Public or private entities engage in the budgetary process. A budget is a quantitative plan of operations that identifies the resources needed to complete the organization's goals and objectives. It includes both financial and nonfinancial aspects. A master budget comprises operating budgets and financial budgets. A good budget is one which not only uses good budgeting techniques but is also based on a sound knowledge of the business as well as the external factors that affect it. The budget serves as a planning tool for the organization as a whole as well as its subunits. It provides a frame of reference against which actual performance can be compared. It provides a means to determine and investigate variances. It also assists the company in planning again based on the feedback received considering the changing conditions. An attainable, fair, and participatory budget is also a good tool for communication, employee involvement, and motivation (, 22/10/2010).

Cash budget

Cash Budget is a detailed budget of cash inflows and outflows incorporating both revenue and capital item. It is thus a statement in which estimated future cash receipts and payments are tabulated in such a way as to show the forecasted cash balance of a business at defined intervals. The cash budget is one of the most important planning tools that an organization can use. It shows the cash effect of the decisions made in the planning process. It can also give management an indication of the potential problems that could arise and allows them the opportunity to take action to avoid such problems. Cash budget reflects the whole business more than any other single budget for a typical business. There are four positions it can show. They are short-term deficit, long-term deficit, short-term surplus and long-term surplus. Management will need to take appropriate action depending on the financial position (, 23/10/2010).

Identify Cash Management

The term cash management refers to planning, controlling, and accounting for cash transactions and cash balances. Because cash moves so readily between bank accounts and other financial assets, cash management really means the...
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