How are cash budgets prepared?

Cash budgets are prepared by estimating cash inflows and outflows over a specific period, typically on a monthly basis. The process begins with forecasting expected revenues from sales and other income sources. Next, anticipated expenses, including fixed and variable costs, are projected. Finally, the cash budget is created by subtracting total cash outflows from total cash inflows, providing a clear picture of the company's cash position and helping to identify any potential shortfalls or surpluses.