The Importance of Cash

Components of the Cash Budget

A cash budget is a prediction of future cash receipts and expenditures for a particular time period, usually in the near future. The cash flow budget helps the business determine when its income will be sufficient to cover its expenses and when it will need outside financing.

A Sample Balance Sheet One of the assets listed is cash, which factors into the overall budget.

A Sample Balance Sheet One of the assets listed is cash, a factor in the overall budget.

Components: Major classes include cash receipts and payments.

Cash Balance, Beginning of the Year
Cash Receipts

Cash generated from operations
Cash receipts from customers – Collecting the accounts receivable. Accounts receivable, also known as Debtors, are money owed to a business by its clients (customers) and shown on the business's balance sheet as an asset. It is one of a series of accounting transactions dealing with billing a customer for goods and services that the customer has ordered.
Proceeds from the sale of equipment.
Dividends received – Dividends are payments made by a corporation to its shareholder members. They are the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be used for two purposes: it can either be re-invested in the business (called retained earnings) or distributed to shareholders.
Other income – Other investment or other interest income, etc.

Cash Payments

Cash paid to suppliers
Cash paid to employees – salary, wages, expenses.
Purchase of assets – equipment, machine, real estate, etc.
Payments related to mergers and acquisitions.
Interest paid – interest on short-term or long-term debt.
Income taxes paid.
Dividends paid – paying dividends to shareholders or investors.
Debt paid – short-term or long-term debt principle.
Other payments include advertising, selling, administration, insurance, rent, etc.

Net increase in cash and cash equivalents

Cash balance, end of year

Key Points

The cash flow budget helps the business determine when its income will be sufficient to cover its expenses and when the company will need to seek outside financing.
Components – major classes include cash receipts and payments.
Cash receipts include cash generated from operations, cash receipts from customers, proceeds from the sale of equipment, dividends received, and other income.
Cash payments include cash paid to suppliers, cash paid to employees, purchase of assets, payments related to mergers and acquisitions, interest paid, income taxes paid, dividends paid, and other payments.

Terms

Mergers and Acquisitions (M&A) – is an aspect of corporate strategy, corporate finance, and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly, whether in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity, or using a joint venture.
Stockholders – a shareholder or stockholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation.