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What actions can management take if the cash budget shows a shortfall? What can management do with a forecast cash surplus? How does the cash budget link to working capital management? How do capital expenditure and financing appear in the cash budget? How are settlement discounts reflected in the cash budget? How does a cash budget help decide on financing arrangements? How do tax and dividend payments feature in the cash budget? How does inventory purchasing policy affect the cash budget? What actions can improve the cash position shown in a cash budget? How do you treat capital receipts (asset sales, share issues) in the cash budget?
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Budgeting & Forecasting › Cash Budgeting

How do bad debts affect cash receipts in the cash budget?

Intermediate

Answer

Bad debts reduce expected cash receipts: only the collectible proportion of credit sales is included as receipts. If, say, 3% of sales become bad debts, receipts are based on 97% of sales collected per the collection pattern. Ignoring bad debts overstates budgeted cash inflows.
Credit sales 100k, 3% bad debts -> collect only 97k over the collection period.
Real-world example The cash budget reflects that a portion of credit sales will never be collected.

Common follow-ups: How is the collectible portion estimated? | What happens if bad debts are ignored?

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All 34 Cash Budgeting questions