What is a cash budget?

A cash budget is a financial plan specifically designed to estimate cash inflows and outflows over a particular period of time, typically on a monthly or quarterly basis. By projecting not just expected revenues but also anticipated expenses, it helps organizations manage their cash flow effectively. This is crucial for maintaining liquidity, ensuring that the business can meet its obligations as they come due, and facilitating informed decision-making regarding investments and other financial strategies.

Creating a cash budget allows businesses to identify periods of cash surplus or shortfall, enabling proactive measures such as securing financing or adjusting expenditures as necessary. This type of budgeting is an integral part of cash flow management, which is essential for the sustainability and operational effectiveness of the organization.

The other choices do not encapsulate the definition of a cash budget. For instance, managing inventory costs is relevant to operational budgeting but does not relate directly to the estimation of cash flow. Similarly, a projection of sales revenue pertains to revenue forecasting and is just one component that can influence cash inflows. Lastly, keeping a record of past financial performance relates to historical data analysis rather than the forward-looking nature of a cash budget.