What is the primary goal of a cash budget?

A cash budget primarily serves the purpose of indicating the business's future cash position. This tool enables a business to forecast its cash inflows and outflows over a specific period, often assessing how much cash is expected to be available at any given time. It allows businesses to plan for the short-term financial needs and helps in making informed decisions about spending, saving, and preventing cash shortages.

By preparing a cash budget, a business can anticipate potential cash shortfalls and take necessary actions, such as arranging for borrowing or adjusting payment schedules, to maintain liquidity. This aids in ensuring that the organization can meet its obligations as they arise, which is crucial for smooth operations and financial health.

While covering all expenses and managing inventory are important facets of running a business, they are not the primary aim of a cash budget. Attracting new investments is related to growth and sustainability, but it is more of a long-term concern rather than a function of cash budgeting. The primary focus remains on assessing and forecasting the cash position to facilitate effective financial management.