Cash Management 313(Rs lac)
April May JuneInflow 238 235 233
Outflow
Purchases 94 17 92
Salaries 45 50 55
Interest 7.5
Principal repayment 100
Utility charges 0.8 0.8 0.8
Net 90.70 167.2 (14.8)
CASH BUDGET
Cash forecasting involves estimation of cash inflows and cash outflows for a period in the future. From the
forecast of all cash receipts and payments cash surpluses or shortages are determined for each sub period
(say, a month). Once the estimate is in place, the concerned executive is expected to initiate appropriate
action to synchronize inflows and outflows. It is unlikely that they will balance on their own. This imbalance
necessitates appropriate action to tide over cash deficit whenever there is one (by borrowing) and plan short-
term investments whenever there is a surplus. A cash budget is a document prepared after effecting these
adjustments. The primary distinction between a cash forecast and cash budget is that the former is an as-is
document while the latter reflects the actions that management plans to take in order to manage future events.
The cash budget contains forecasted figures of receipts and disbursements of cash over a certain period of
time—usually one year. A typical cash budget has four sections: receipts, payments, deficit/surplus, and
adjustments.
The receipts section lists out all anticipated cash receipts from all sources such as cash collected from
customers, sale of plant and equipment, scrap sales, advance payment by customers, etc. The payment section
records all anticipated cash payments like repayment of term loans, salaries and wages, purchase of raw
material, fuel, excise duty, etc. The deficit or surplus section gives the difference between receipts and
payments. If the inflow is more than the outflow, a surplus results—else, the result is a deficit. The cash budget
also reveals the opening cash balance, ending cash balance and the desired cash balance. The adjustment
section reveals the actions the management intends to take in periods of deficit or surplus.
An Illustration
Dalmia Cement (Bharat) Ltd. (DCBL) was incorporated in 1951. It has a cement plant at Dalmiapuram in
Trichy, Tamil Nadu. Cement comprises the larger portion of DCBL’s turnover. The company also has business
interests in electronics, sugar and travel. DCBL has an installed capacity of 10.34 lac tpa of cement at Trichy.
The company manufactures several grades of cement such as portland, portland pozzolona, portland blast
furnace slag, super sulphate, etc. However, it does not manufacture white cement. The company prepares cash
budget for the entire year (a portion of the budget prepared in for the year 1997–98 is shown in Exhibit 16.7).