The cash budget takes into account the beginning cash balance, the receipts from sales and the disbursements for any cash payments. The beginning balance plus the receipts gives us the total cash available. By subtracting the disbursements from the available cash, we can find the ending balance. One purpose of this exercise is to determine whether the monthly cash balances will be sufficient to maintain liquidity and to meet any requirements from the bank regarding minimum cash balances. Banks get rather nasty about repeated overdrafts [and overdraft fees are pretty steep], so it's to our advantage to predict cash flows as accurately as possible. If the budget shows a shortage of cash, we can make arrangements for a line of credit or other short term financing.

If we put together the cash receipts and the disbursements schedules, we get something like this:

 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Beginning cash \$ 2,200.00 \$          1,712.00 \$ 1,802.00 \$ 1,567.00 \$ 1,332.00 \$ 1,065.50 \$    708.00 \$    634.50 \$    499.00 \$    136.00 \$    159.00 \$    572.00 \$   2,200.00 Add: receipts from sales \$    650.00 \$             975.00 \$    650.00 \$    650.00 \$    650.00 \$    812.50 \$    975.00 \$    812.50 \$    975.00 \$ 1,625.00 \$ 1,625.00 \$    975.00 \$ 11,375.00 Total cash available \$ 2,850.00 \$          2,687.00 \$ 2,452.00 \$ 2,217.00 \$ 1,982.00 \$ 1,878.00 \$ 1,683.00 \$ 1,447.00 \$ 1,474.00 \$ 1,761.00 \$ 1,784.00 \$ 1,547.00 \$ 13,575.00 less disbursements: Purchases of matl and supplies \$    115.00 \$             126.00 \$    126.00 \$    126.00 \$    157.50 \$    189.00 \$    157.50 \$    189.00 \$    315.00 \$    315.00 \$    189.00 \$    189.00 \$   2,194.00 Utilities \$      43.00 \$               24.00 \$      24.00 \$      24.00 \$      24.00 \$      33.50 \$      33.50 \$      24.00 \$      43.00 \$      62.00 \$      43.00 \$      24.00 \$      402.00 Insurance premium \$      90.00 \$      90.00 \$      180.00 Rent \$    390.00 \$             390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$    390.00 \$   4,680.00 Pay grandson \$    100.00 \$             100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$    100.00 \$   1,200.00 Charlie's salary \$    360.00 \$             180.00 \$    180.00 \$    180.00 \$    180.00 \$    270.00 \$    270.00 \$    180.00 \$    360.00 \$    540.00 \$    360.00 \$    180.00 \$   3,240.00 Sales commission \$    130.00 \$               65.00 \$      65.00 \$      65.00 \$      65.00 \$      97.50 \$      97.50 \$      65.00 \$    130.00 \$    195.00 \$    130.00 \$      65.00 \$   1,170.00 Total disbursements \$ 1,138.00 \$             885.00 \$    885.00 \$    885.00 \$    916.50 \$ 1,170.00 \$ 1,048.50 \$    948.00 \$ 1,338.00 \$ 1,602.00 \$ 1,212.00 \$ 1,038.00 \$ 13,066.00 Ending cash balance \$ 1,712.00 \$          1,802.00 \$ 1,567.00 \$ 1,332.00 \$ 1,065.50 \$    708.00 \$    634.50 \$    499.00 \$    136.00 \$    159.00 \$    572.00 \$    509.00 \$      509.00

The \$2,200 in beginning cash in January comes from the balance sheet. Note that any month's ending cash balance is the next month's beginning cash balance. Where will the \$509.00 in December show up?  Answer

Develop a cash budget worksheet that looks like this. When your cash budget numbers agree with those above, you are ready to move on to the profit plan. Click "next."