Definition

Revenue budgets are primarily concerned with sales income or income generated in other ways. Revenue needs to be scheduled as to when it is expected to come in and how it is to be allocated. This is part of the function of the cash budget.

Explanation

An operating budget is prepared in terms of revenues and expenses. For financial planning purposes, it translates into cash receipts and cash disbursements. This is the cash budget.

Cash budgets ensure that the company has enough—but not too much—cash on hand during the period ahead.

Preparation of a Cash Budget

When preparing a cash budget, it is important to calculate and project forward cash receipts and cash disbursement items.

You should also remember:

  • Exclude depreciation and other non-cash items from the cash budget
  • Round-up the figures, which is normal in budgets; budget users do not need precise estimates, and so rounded-up whole numbers are adequate

Frequently Asked Questions

How is a company's revenue budgeted?

The expected sales income or other income is scheduled as to when it is expected to come in and how it will be allocated. This is part of the function of the cash budget.

How does the cash budget help a company?

The cash budget helps ensure that the company has enough-but not too much-cash on hand during the period ahead.

What is the difference between a revenue budget and a cash budget?

The revenue budget is primarily concerned with sales income or other income generated in other ways, while the cash budget ensures that the company has enough-but not too much- cash on hand during the period ahead.

What types of revenue does a cash budget include?

A cash budget includes expected sales income or other income as scheduled as to when it is expected to come in and how it will be allocated. This is part of the function of the cash budget. The inclusion of Depreciation and other non-cash items is also important to remember when preparing a cash budget.

What is the importance of rounding-up figures in a budget?

Budget users do not need precise estimates, and so rounded-up whole numbers are adequate. Rounding-up figures helps make the budget more user-friendly.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.