A cash budget lists the cash expected to come in and go out each month, in the month it actually moves. Opening cash plus receipts minus payments gives closing cash, and that closing figure becomes the next month’s opening cash.
This lesson is part of SPM Accounting cost and management accounting. Timing is covered further in profit, cost and cash are different questions.
How do I build it?
Work in three steps, and keep each month in its own column.
- Receipts: cash sales in the month plus collections from earlier credit sales.
- Payments: cash paid in the month for purchases, expenses and assets. Leave out depreciation.
- Closing cash: opening cash + receipts − payments.
Worked example: Kedai Hiasan
An invented shop starts January with cash of RM3 000. Half of each month’s sales are cash and half are collected the month after. December sales were RM8 000.
| RM | Jan | Feb | Mar |
|---|---|---|---|
| Sales | 10 000 | 12 000 | 14 000 |
| Cash sales (50%) | 5 000 | 6 000 | 7 000 |
| Collections from last month | 4 000 | 5 000 | 6 000 |
| Total receipts | 9 000 | 11 000 | 13 000 |
| Purchases paid | 6 000 | 7 000 | 8 000 |
| Wages and rent | 2 500 | 2 500 | 2 500 |
| Equipment bought | 0 | 2 000 | 0 |
| Total payments | 8 500 | 11 500 | 10 500 |
| Opening cash | 3 000 | 3 500 | 3 000 |
| Net movement | +500 | −500 | +2 500 |
| Closing cash | 3 500 | 3 000 | 5 500 |
Check January: 3 000 + 9 000 − 8 500 = 3 500. The same RM3 500 is February’s opening cash.
The mistake that mixes profit and cash
It is easy to add depreciation of RM300 to the payments. Depreciation is an accounting charge and no cash leaves the business, so it stays out of a cash budget.
The equipment purchase of RM2 000 is the opposite. It is not a profit expense in February, but the cash does go out in February, so it belongs in the budget.
Check yourself
Opening cash in April is RM2 000. Receipts are RM6 500 and payments are RM7 200. In May, receipts are RM5 900 and payments are RM4 800. Find each month’s closing cash.
Answer
April: 2 000 + 6 500 − 7 200 = RM1 300.
May opens with RM1 300: 1 300 + 5 900 − 4 800 = RM2 400.
What to study next
Test scenario thinking in interpreting cost-volume-profit scenarios. Then try the full chapter practice set.
If you would like a teacher to go through your budget tables with you, see online one-to-one Accounting tuition.