QCE Accounting - Unit 3 - Cash management

Cash budgets and estimated receipts

Learn cash budgets, estimated receipts from accounts receivable, timing assumptions and cash management analysis for QCE Accounting.

Part of the free QCE Accounting notes library for Unit 3: Cash management.

Updated 2026-05-18 - 5 min read

A cash budget is a forecast of cash receipts, cash payments and closing cash balances for future periods. It is not an income statement. It includes only cash movements, so depreciation, credit sales not yet collected, credit purchases not yet paid and other non-cash items are handled through timing schedules rather than simply copied from profit data.

Cash budgets are useful because many business problems appear before they appear in profit. A business may expect strong annual sales but still face a cash shortage in March because customers pay slowly and a large insurance premium is due. The budget gives the owner time to respond before the shortage happens.

Cash budget structure

| Section | Typical items | |---|---| | Opening cash balance | Cash at Bank at the start of the period | | Cash receipts | Cash sales, receipts from accounts receivable, capital contribution, loan receipts, sale of assets, GST refund if applicable | | Total cash available | Opening cash plus total receipts | | Cash payments | Payments to suppliers, wages, rent, advertising, insurance, non-current assets, loan repayments, drawings, GST payable if applicable | | Closing cash balance | Total cash available less total payments |

The closing cash balance for one month becomes the opening cash balance for the next month. A negative closing balance indicates a predicted overdraft or shortage. That does not automatically mean the business is failing, but it does mean management must plan finance, defer payments, improve collections, reduce drawings or change operating plans.

Estimated receipts from accounts receivable

Credit sales create accounts receivable first and cash later. A statement of estimated receipts from accounts receivable converts credit sales into cash receipt months by applying collection patterns.

For example, if 40 percent of credit sales are collected in the month of sale, 55 percent in the following month and 5 percent are expected to be uncollectable, the cash budget should not place the whole sale in the month the sale occurs. The budget should allocate receipts across months.

| Sale month | Credit sales | 40 percent collected same month | 55 percent collected next month | 5 percent uncollectable | |---|---:|---:|---:|---:| | January | \$20 000 | \$8 000 in January | \$11 000 in February | \$1 000 | | February | \$24 000 | \$9 600 in February | \$13 200 in March | \$1 200 |

This schedule also reveals a control issue. A business with slow receipts may need better credit checks, shorter payment terms, discounts for prompt payment, reminder statements or stricter follow-up.

Timing assumptions

Budgets depend on assumptions. The quality of a cash budget depends on the realism of sales forecasts, collection patterns, supplier payment terms, seasonality, tax timing, loan repayments, planned asset purchases and owner drawings. A forecast should state or imply the timing rules used.

Useful assumptions include:

| Area | Example assumption | |---|---| | Cash sales | All cash sales are received in the month of sale | | Credit sales | 30 percent collected in month of sale, 65 percent next month, 5 percent bad debts | | Credit purchases | Suppliers paid one month after purchase | | Wages and rent | Paid in the month incurred | | Insurance | Annual premium paid in July | | GST | Net GST paid or refunded in the month after each quarter | | Non-current assets | Delivery vehicle bought for cash in September |

Analysing a cash budget

When a budget shows a shortage, identify cause, size, timing and solution. A short one-month shortage caused by a planned asset purchase may be solved with a temporary overdraft or by delaying the purchase. A recurring shortage caused by poor collections or excessive drawings needs an operating change.

Cash budget analysis should compare forecast and actual figures where available. If actual receipts are lower than budget, the cause might be lower sales, a weaker collection rate or more bad debts. If actual payments are higher, the cause might be price increases, unplanned expenses, inventory overbuying or inaccurate assumptions.

Worked example

Quick check

Sources

• QCAA Accounting subject page
• QCAA Accounting 2025 syllabus
• business.gov.au cash flow guide
• business.gov.au budget guide

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