Once we are satisfied that we have taken all foreseeable cash inflows and outflows into account, we combine the cash receipts and disbursements schedules to obtain the net cash inflow or outflow for each month. The net cash flow may then be added to beginning cash in January, which is assumed to be $100,000, and the projected cash position computed month by month for the period under review. This final schedule is shown.

The cash budget shown there indicates that the firm is expected to have a cash deficit in April and May. These deficits are caused by a decline in collections through March, capital expenditures totaling $200,000 spread over February and March, and cash dividends of $20,000 in March and June. With the increase in collections in May and June, the cash balance without additional financing rises to $13,500 in June. The cash budget indicates that peak cash requirements occur in April. If the firm has a policy of maintaining a minimum cash balance of $75,000 and of borrowing from its bank to maintain this minimum, it wiL need to borrow an additional $66,000 in March. Additional borrowings will peak at $105,500 in April, after which they will decline to $61,500 in June, if all goes according to prediction.

Alternative means of meeting the cash deficits are available. The firm may be able to delav its capital expenditures or its payments for purchases. Indeed, one of the principal purposes of a cash budget is to determine the timing and magnitude of prospective financing needs so that the most appropriate method of financing can be arranged. A decision to obtain longterm financing should be based on long-range funds requirements and on considerations apart from a cash forecast. In addition to helping the financial manager plan for short-terir, financing, the cash budget is valuable in managing the firm's cash position. On the basis of a cash budget, the manager can plan to invest excess funds in marketable securities. The result is an efficient transfer of funds from cash to marketable securities and back.

Often there is a tendency to place considerable faith in the cash budget simply because it is expressed in impressive-looking figures - perhaps even on a computer printout. We stress again that a cash budget merely represents an estimate of future cash flows. Depending on the care devoted to preparing the budget and the volatility of cash flows resulting from the nature of the business, actual cash flows will deviate more or less widely from those that are expected In the face of uncertainty, we must provide information about the range of possible outcomes. Analyzing cash flows under only one set of assumptions, as is the case with conventional cash budgeting, can result in a faulty perspective of the future.