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Budgeting

6.2 Preparing a cash budget

There is no definitive format which should be used for a cash budget. However, it
should include:

 A clear distinction between the cash receipts and cash payments for each
period and a subtotal clearly shown for each.

 A figure for the net cash flow for each period.

 The closing cash balance for each period.

 Only include cash flows – items such as depreciation are not
cash flows.

 Allowance must be made for bad and doubtful debts – bad debts
will never be received, and doubtful debts may not be received.
When you are forecasting the cash receipts from customers you
must remember to adjust for these items.

 Include all cash flows – the cash budget does not just reflect
sales revenue and production costs, but all movements of cash
including cash flows for financial items such as inflows from the
sale of shares or grants received and outflows such as the
purchase of a non-current asset or the repayment of a loan.

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