There are a number of ways of handling cash from simple to very detailed. Three ways are described here.

The simplest method of handling cash is to create an envelope called "Cash" and allocate money from your deposits to this envelope. When you withdraw cash, record an ATM transaction out of this envelope. With this method you will be able to see the amount used for cash. This method is very simple but lacks any real detail on how the cash was spent.

A more detailed method is to create an envelope called "Cash", but don't allocate any money from your deposits; leave the pay fields $0.00 when you create this envelope. When you take money from your bank account for cash, deduct it from this "Cash" envelope and let the envelope go negative (cancel the Available transfer that Budget automatically starts). As you spend the cash, transfer money from the proper envelope to the "Cash" envelope (see also Transfer between envelopes).

This method provides a means of tracking the cash you spend, since each of the envelopes in your Budget ("Entertainment" in the above example) has recorded the transaction. The statistics function would show this as an expense for Entertainment.

Create a bank account and name it "Cash". This virtual account will represent the amount of cash you have, and will contain all transactions regarding cash.

You don't need to set any pay source to pay into the Cash account, unless you are paid in cash (such as from tips, etc), or you routinely cash your check immediately without putting it into a real world bank account. In either of those cases you could have a pay source pay into the Cash account.

When you withdraw cash from a real world bank account, in Budget you can transfer the money from that bank account to the Cash virtual account. Just drag from one bank account to the other (see also Transfer between bank accounts). At the top of the transfer window, the account on the left is the "from" account (the checking account, for example) and the one on the right is the "to" account (the Cash account). You will need to specify what envelopes you are affecting with this transfer. For example, you can use this to designate cash being taken out for groceries, music, or whatever.

When you spend cash out of your pocket, you can record that in the "Cash" bank account and use a Debit transaction.

Once in a while you can use the Balance command on the Cash account to make sure that the Budget records match up with the amount of money in your pocket.