An example budget may run for one quarter. Like bank reconciliation, there may be a present record of future cash receipt and cash payment, such as accounts receivable and accounts payable, in the current balance sheet . These should be included in the cash budget, as they are likely to fall due and be settled in the budgetted quarter. A cash budget may include predictions of cash flow , based on previous patterns of cash flow. e.g. 60% of credit sales are collected in the same month, with 30% collected in the next month, and 8% collected in the second month.
Operating cash flows include sales revenue, and inventory purchases. Each can be divided into smaller periods of cash flow, e.g. immediate payment, payment within a month, payment in the next month, payment in 2 months, estimated bad debt ( never paid, this pertains to sales revenue, as it would be unethical to plan for inventory purchases that are intended never to be paid). When these payments are viewed within a longer budget period, it is usually the ones at the end of the period that partial cash collections occur , of the sales or purchases that occur in the ending months for example. So if credit extends for up to 2 months, then the predicted 30+ days credit receipts for sales in the last month, and the predicted 30+ days credit payment for purchases in the last month, will not be part of the cash flow for the quarter being accounted for.
Apart from operating cash flows of sales and inventory purchases, there will be operating cash expenses such as wages, rent, interest, and any cash prepayments that fall due like rates and insurance. Depreciation is not a cash expense, and shouldn't be included.
In the second division of investing cash flows, sale of equipment and purchase of equipment and the cash that is exchanged in those transactions should be considered. Interest income from non-core investments is often cash.
In the third division, there may be regular cash flows of a financial nature, such as payment of dividends on shares, payment of principal on bank loans, and possibly extraordinary items like issuing of shares with cash from subscriptions.
These cash receipts and payments can be worked out for the period in question (e.g. a quarter), and the net cash flow can be determined , in order to see if there is any danger of a cashflow stoppage, because of excessive cash outflow.
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