Prepare a cash budget
Combine opening cash, receipts and payments to forecast closing cash and identify financing needs.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.3 covers budgetary control, linked master-budget schedules, spreadsheets, limiting factors, flexible budgets, reconciliations, behavioural effects and supported decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topics 2.1–2.2 for cost behaviour, contribution and budgeting foundations. For each schedule, label the period, units, price, inventory policy, timing assumptions and opening balance before calculating.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A customer pays an old credit invoice. What does this create in the cash budget?
What you will learn
- Separate cash receipts from revenue
- Prepare a cash-budget reconciliation
- Identify timing shortfalls and possible responses
Cash depends on timing
Closing cash = opening cash + cash receipts − cash payments. Receipts may include customer collections, cash sales, asset disposals or new finance; payments may include suppliers, wages, expenses, assets, tax, interest or dividends when they are paid.
Use linked receivables and payables schedules for credit transactions. A sale can create revenue before cash arrives; an expense can be incurred before payment. A cash budget records expected cash movements, not accounting profit.
A shortfall is a planning signal
A forecast negative balance or buffer shortfall may indicate a need to change timing, arrange finance, manage stock or reassess investment. Identify which week or month has the constraint; an annual positive total can hide a temporary shortfall.
Check the reliability of receipt dates and protect essential obligations. A loan can bridge timing but creates interest and repayment commitments; delaying suppliers may harm supply or terms.
Pause and explain
Opening cash $2,300, receipts $11,000, payments $12,500. Find closing cash.
Worked example
Opening cash is $8,000. Receipts are $42,000 and payments are $45,500. Find closing cash.
Show the worked solution
- Add cash available: 8,000 + 42,000 = $50,000.
- Subtract payments: 50,000 − 45,500.
- Label the balance at period end.
Answer Closing cash = $4,500.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Opening cash $15,000; receipts $68,000; supplier payments $38,000; wages $22,000; other cash payments $9,500. Find closing cash.
Give me a hint
Total all payments before subtracting them.
Compare my reasoning
- Total payments = 38,000 + 22,000 + 9,500 = $69,500.
- Cash available = 15,000 + 68,000 = $83,000.
- Closing cash = 83,000 − 69,500 = $13,500.
Closing cash is $13,500.
Look for these in your work
- Payments totalled
- Opening cash and receipts added
- Closing cash calculated
A firm starts with $4,000. It collects $28,000, pays suppliers $19,500, wages $8,200, rent $2,000 and purchases equipment for $6,000. Find the closing balance and identify whether it is a surplus or shortfall.
Give me a hint
Include the equipment purchase because cash is paid in this period.
Compare my reasoning
- Payments = 19,500 + 8,200 + 2,000 + 6,000 = $35,700.
- Available cash = 4,000 + 28,000 = $32,000.
- Closing balance = 32,000 − 35,700 = −$3,700.
There is a $3,700 cash shortfall.
Look for these in your work
- Equipment payment included
- Receipts/payments total correct
- Shortfall labelled
A profitable business forecasts a temporary cash deficit while customers pay late. What should its manager investigate before choosing finance?
Give me a hint
Locate the timing cause and check the linked working-capital schedules.
Compare my reasoning
- Check collection dates, overdue accounts and the reliability of expected receipts.
- Review inventory purchases and supplier payment timing for feasible adjustments.
- Compare financing cost and repayment ability while protecting essential operations.
Investigate overdue receipts and working-capital timing, then compare affordable financing and operational options. Profit does not guarantee cash is available when due.
Look for these in your work
- Receipt timing checked
- Inventory/payables reviewed
- Financing risk evaluated
Common mistakes
- Using sales revenue instead of cash receipts
- Including unpaid expenses as cash payments
- Ignoring the opening balance
What can you explain now?
Which formula gives closing cash?
Compare with the explanation
Opening cash + receipts − payments
Cash available increases with receipts and falls with actual-period payments.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Explain why profit and closing cash can differ, and state the cash-budget formula.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.