A cash budget is one of the main important devices to plan and control cash payments and receipts. In preparation of a cash budget the subsequent points are considered.

• Credit period permitted to debtors and the credit period permitted by creditors to the firm for goods and services.
• Payment of dividends and taxes, and the month wherein such payments are to be made.
• Non-consideration of non-cash transactions or depreciation. This type of transactions has no signify on cash flow.
• Minimum cash balance required and the amount of credit or overdraft limit permitted by the banks.
• Plan to deal along with cash surplus and cash deficit situations.
• Debt repayment as time and amount.

In the figure 2 highlights the cash shortage and cash surplus position over the period of cash budget for preplanning to acquire corrective and essential steps.

Figure: Cash surplus and cash deficit situations