1 The Receipts and Disbursements Method

This is the simplest and most common cash budgeting model, which involves listing all the expected cash receipts and cash payments for each period. The receipts include sales revenue, interest income, loan proceeds, and other sources of cash inflow. The disbursements include operating expenses, debt repayments, capital expenditures, dividends, and other uses of cash outflow. The difference between the receipts and the disbursements is the net cash flow for each period. The net cash flow can be positive or negative, indicating a surplus or a deficit of cash. The cumulative net cash flow shows the ending cash balance for each period, which can be compared to the desired minimum cash balance to determine the cash gap.

2 The Adjusted Net Income Method

This is a more sophisticated cash budgeting model, which involves adjusting the net income from the income statement for non-cash items and changes in working capital. The non-cash items include depreciation, amortization, gains or losses on asset sales, and deferred taxes. The changes in working capital include the changes in accounts receivable, inventory, accounts payable, and other current assets and liabilities. The adjusted net income represents the cash flow from operations, which can be further adjusted for cash flow from investing and financing activities. The sum of the cash flows from all three activities is the net cash flow for each period. The cumulative net cash flow shows the ending cash balance for each period, which can be compared to the desired minimum cash balance to determine the cash gap.

3 The Percentage of Sales Method

This is a more simplified cash budgeting model, which involves using historical ratios of various items to sales to project the future cash inflows and outflows. The sales revenue is the main driver of the cash budget, which can be estimated based on the expected growth rate, price, and volume. The other items, such as cost of goods sold, operating expenses, capital expenditures, and working capital, are expressed as a percentage of sales and multiplied by the projected sales to obtain the cash inflows and outflows. The difference between the cash inflows and the cash outflows is the net cash flow for each period. The cumulative net cash flow shows the ending cash balance for each period, which can be compared to the desired minimum cash balance to determine the cash gap.

4 The Scenario Analysis Method

This is a more advanced cash budgeting model, which involves creating multiple scenarios of the future cash inflows and outflows based on different assumptions and probabilities. The scenarios can range from best case to worst case, reflecting the uncertainty and variability of the cash flow drivers. The scenarios can be assigned different weights based on their likelihood of occurrence, and the weighted average of the net cash flows can be calculated for each period. The cumulative net cash flow shows the ending cash balance for each period, which can be compared to the desired minimum cash balance to determine the cash gap. The scenario analysis method can also provide a range of possible outcomes and help assess the sensitivity and risk of the cash budget.