What is a cash budget primarily used for?

A cash budget is primarily used for planning for cash inflows and outflows. This type of budget plays a crucial role in ensuring that an organization has sufficient cash available to meet its operational needs. By projecting future cash receipts and payments, a cash budget allows a business to anticipate cash shortages or surpluses and to manage its liquidity effectively.

This is particularly important because cash flow is vital for day-to-day operations, and having an accurate cash budget helps in making informed decisions regarding investments, expenses, and potential borrowing. It can also aid in identifying the timing of cash needs, enabling a company to take proactive measures to secure financing or optimize cash usage.

In contrast, while estimating net profits, assessing overall financial assets, and monitoring inventory levels are important aspects of financial management, they do not specifically address the real-time liquidity needs that a cash budget is designed to manage.