A cash budget is a vital financial planning tool used by businesses to manage their liquidity. Its primary purpose is to Forecast cash inflows and outflows over a specific future period, typically monthly or quarterly. By projecting all expected cash receipts (like sales collections) and cash payments (like expenses, loan repayments, and purchases), a cash budget helps management anticipate periods of cash surplus or deficit. This allows them to plan for financing needs, such as securing short-term loans, or identify opportunities to invest excess cash, ensuring the business maintains adequate liquidity to meet its obligations.
The other options describe different financial activities. Calculate profit is the purpose of an income statement, which matches revenues and expenses (including non-cash items like depreciation) to determine net income, not just cash movements. Estimate depreciation is a non-cash expense calculation used for the income statement and balance sheet, not directly for a cash budget, which focuses solely on actual cash transactions. Determine inventory levels is related to inventory management and production planning, though cash flow projections from a cash budget can influence these decisions, it is not its direct primary purpose.