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A cash budget sets the approved timing of receipts, payments and financing for a fixed period. Follow a worked company example, reconcile the closing balance, and compare actual cash movements with the original plan.
A cash budget is the approved schedule of when a company expects to receive cash, make payments and use financing during a fixed period. Its purpose is to show whether available cash covers the planned outflows while preserving an agreed minimum balance. Keep that approved version so actual movements can be judged against the plan management accepted.
The budget measures cash availability, rather than sales earned or expenses recognized. A sale belongs in the receipts schedule when the customer is expected to pay. A supplier invoice belongs in the payment schedule when the company expects to settle it.
That distinction follows the SBA's explanation of accrual and cash accounting: recognizing a sale and receiving its payment can happen in different months. The budget is a management schedule; it does not change the accounting method used for financial reporting.
The OpenStax financial-budget guide connects customer collections, supplier payments, capital spending and financing in the cash budget. Build those supporting schedules first. Otherwise the final cash line becomes an unsupported assumption.
A fixed budget also has a different job from a cash flow forecast, which owns the rolling outlook as new information arrives. Preserve the baseline and update expectations separately; the budget versus forecast distinction explains how both views belong in management reporting.
Cash before financing = Opening available cash + Receipts − Cash payments
Closing cash = Cash before financing + Borrowing − Principal repayments
Opening cash must match the bank accounts within the budget's scope, after reconciling outstanding items. Identify restricted balances separately rather than treating them as available to pay routine bills.
The useful source files are an accounts-receivable collection schedule, accounts-payable due dates, payroll calendar, approved capital purchases and a debt payment schedule. Retain the customer or supplier reference, expected settlement date, amount, owner and approval version. This makes a monthly total traceable to the business event behind it.
Use positive amounts for receipts and payments in separate columns. Show interest within payments and debt principal in the financing section. Do not also deduct principal in operating payments. A separate capital versus operating budget explains how asset approvals feed the plan without treating the entire purchase as a current expense.
An Ohio equipment distributor approves this January through March budget. Opening available cash is $45,000, the minimum closing balance is $25,000, and opening borrowing under the illustrated facility is zero. The interest amounts are supplied payment assumptions, rather than amounts inferred from an unstated borrowing rate.
All table amounts are USD. The example assumes the required draws are available and approved; identifying a financing need does not itself arrange funding.
| Budget line (USD) | January | February | March |
|---|---|---|---|
| Opening cash | 45,000 | 25,000 | 25,000 |
| Customer receipts | 90,000 | 110,000 | 130,000 |
| Supplier payments | 65,000 | 70,000 | 75,000 |
| Payroll and administration | 40,000 | 42,000 | 44,000 |
| Equipment payments | 20,000 | 0 | 10,000 |
| Interest payments | 500 | 500 | 500 |
| Total payments | 125,500 | 112,500 | 129,500 |
| Cash before financing | 9,500 | 22,500 | 25,500 |
| Borrowing | 15,500 | 2,500 | 0 |
| Principal repayments | 0 | 0 | 500 |
| Closing cash | 25,000 | 25,000 | 25,000 |
| Closing facility borrowing | 15,500 | 18,000 | 17,500 |
January payments are 65,000 + 40,000 + 20,000 + 500 = $125,500. Cash before financing is 45,000 + 90,000 − 125,500 = $9,500. The gap to the $25,000 floor is $15,500, which becomes the planned draw.
February needs another $2,500. March generates $500 above the floor, which the example applies to outstanding principal. That repayment changes the borrowing balance, but it does not change the previously budgeted operating payments.
No rounding is needed: every amount is a whole dollar. The cash budget template provides a cell layout for this approval and financing structure.
First, each closing cash balance must become the next month's opening balance. Second, opening borrowing plus draws less repayments must equal closing borrowing. Third, the whole period must reconcile without adding monthly opening balances together.
Customer receipts total $330,000 and payments total $367,500. Net borrowing is 15,500 + 2,500 − 500 = $17,500. The period check is therefore:
45,000 + 330,000 − 367,500 + 17,500 = 25,000 closing cash
The highest illustrated facility balance is $18,000 in February. That is the peak shown by this monthly schedule; payments occurring before collections inside a month could require more. Review settlement dates before treating monthly headroom as sufficient.
Keep the approved amounts unchanged and add actuals from reconciled bank and ledger exports. Match each movement to the same category and period. Retain financing separately so a new draw cannot conceal an operating shortfall.
For January, suppose actual cash movements compare with the approval as follows. Borrowing stays at the approved amount, and there is no principal repayment.
| January cash line (USD) | Approved budget | Actual |
|---|---|---|
| Opening cash | 45,000 | 45,000 |
| Customer receipts | 90,000 | 84,000 |
| Supplier payments | 65,000 | 62,000 |
| Payroll and administration | 40,000 | 41,000 |
| Equipment payments | 20,000 | 20,000 |
| Interest payments | 500 | 500 |
| Total payments | 125,500 | 123,500 |
| Cash before financing | 9,500 | 5,500 |
| Borrowing | 15,500 | 15,500 |
| Principal repayments | 0 | 0 |
| Closing cash | 25,000 | 21,000 |
Actual payments total 62,000 + 41,000 + 20,000 + 500 = $123,500. With the approved $15,500 draw, closing cash is 45,000 + 84,000 − 123,500 + 15,500 = $21,000.
The $4,000 cash shortfall versus budget comes from $6,000 less receipts, offset by $3,000 less supplier payments and reduced by $1,000 extra payroll and administration. Finance should identify whether receipts and payments moved to another period or changed permanently before proposing a response.
Bring the approved receipts and payments workbook and a sample of your own bank or ledger export. Covirage maps the columns, and its tools compute and check the budget comparisons; the external AI model explains the results with every figure traced to its rows. Create a free Covirage account in about a minute, then set up your business and bring your file.
See Covirage for finance teams for the supporting reporting context.
Depreciation does not belong in cash payments because it does not itself move cash. Include the payment for an asset when it will occur, and include separately scheduled interest and principal payments when the company expects to pay them.
Finance normally assembles the schedule from collections, purchasing, payroll, capital spending and financing inputs. Operating owners confirm timing and amounts. The company's designated approver accepts the cash floor and financing assumptions before finance preserves the approved version.
Yes. Customers may pay after suppliers and employees must be paid. Inventory purchases, equipment payments and debt principal also consume cash without matching the period's profit expense. A cash budget exposes that timing gap before the planned payments occur.