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    Cash Budget

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    Jann Kerky
    The document discusses cash budgeting and provides information on its uses and steps for preparation. Cash budgeting helps plan for short-term financing needs by revealing expected cash inflows and outflows over a period. The key steps are to prepare schedules for sales receipts, total cash receipts, cash expenses, total cash disbursements, and the net cash flow. An example cash budget is provided for Ace Manufacturing Company over three months to determine if borrowing will be needed to maintain a $20,000 minimum cash balance.

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    Cash Budget

    Uploaded by

    Jann Kerky
    1K views3 pages
    The document discusses cash budgeting and provides information on its uses and steps for preparation. Cash budgeting helps plan for short-term financing needs by revealing expected cash inflows and outflows over a period. The key steps are to prepare schedules for sales receipts, total cash receipts, cash expenses, total cash disbursements, and the net cash flow. An example cash budget is provided for Ace Manufacturing Company over three months to determine if borrowing will be needed to maintain a $20,000 minimum cash balance.

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    The document discusses cash budgeting and provides information on its uses and steps for preparation. Cash budgeting helps plan for short-term financing needs by revealing expected cash inflows and outflows over a period. The key steps are to prepare schedules for sales receipts, total cash receipts, cash expenses, total cash disbursements, and the net cash flow. An example cash budget is provided for Ace Manufacturing Company over three months to determine if borrowing will be needed to maintain a $20,000 minimum cash balance.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    1K views3 pages

    Cash Budget

    Uploaded by

    Jann Kerky
    The document discusses cash budgeting and provides information on its uses and steps for preparation. Cash budgeting helps plan for short-term financing needs by revealing expected cash inflows and outflows over a period. The key steps are to prepare schedules for sales receipts, total cash receipts, cash expenses, total cash disbursements, and the net cash flow. An example cash budget is provided for Ace Manufacturing Company over three months to determine if borrowing will be needed to maintain a $20,000 minimum cash balance.

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    The key takeaways from the passage are that a cash budget is used to plan for short-term financing needs and helps determine the timing and amount of expected cash inflows and outflows. It also reveals when additional financing may be needed.

    The steps involved in preparing a cash budget according to the passage are: 1) Prepare a schedule of sales receipts 2) Prepare a schedule of total cash receipts 3) Prepare a schedule of cash expenses 4) Prepare a schedule of total cash disbursements 5) Prepare the net cash flow table

    The sample cash budgeting problem provides information on sales forecasts, accounts receivable collection periods, cost of goods manufactured payment terms, expenses, interest and dividend payments, capital expenditures, and taxes for the company Ace Manufacturing.

    CASH BUDGETING

    To help plan for short-term financing.


    To know the position of future cash inflows and outflows.
    Reveals the amount and timing of expected cash flows over the period studied.

    USES:
    1.
    2.
    3.
    4.

    For determining the timing and magnitude of prospective financial needs.


    Nature of financing (how to finance).
    Determine what point investment (short-term) of excess funds is possible.
    To exercise control over cash and liquidity.

    STEPS IN THE PREPARATION OF CASH BUDGET:


    1. Prepare a schedule of sales receipts (Total Sales Receipt = Cash sales + Collection
    of credit sales)
    2. Prepare a schedule of total cash receipts (Total Cash Receipts = Sales receipts +
    Sale of assets + Sale of securities + other sources of income + Loans)
    3. Prepare a schedule of cash expenses (Cash expenses from operations) includes
    purchases, wages and salaries, rent, other operating expenses.
    4. Prepare a schedule of total cash disbursements (Cash expenses + capital expenses
    + dividends + purchase of securities / investment + payment of principal and interest
    + taxes)
    5. Prepare the net cash flow table (Net Cash flow = Total cash receipts Total cash
    disbursements)
    Sample Problem for Cash Budgeting:
    1. Prepare a cash budget for the Ace Manufacturing Company indicating receipts and
    disbursements for May, June, and July. The firm wishes to maintain a minimum cash
    balance of $20,000 at all times. Determine whether or not borrowing will be necessary
    during the period, and if it is, when and for how much. As of April 30, the firm had a
    balance of $20,000 in cash.
    Actual Sales
    Forecasted Sales
    January
    $50,000
    May
    $70,000
    February
    $50,000
    June
    $80,000
    March
    $60,000
    July
    $100,000
    April
    $60,000
    August
    $100,000
    Accounts Receivable: 50% of total sales are for cash. The remaining 50% will be
    collected equally during the following 2 months (the firm incurs a negligible bad debt
    loss).
    Cost of Goods Manufactured: 70% of sales, 90% of this cost is paid during the first
    month after incurrence, the remaining 10% is paid the following month.

    Sales and Administrative Expenses: $10,000 per month plus 10% of sales. All of these
    expenses are paid during the month of incurrence.
    Interest Payments: Semi-annual interest of $18,000 is paid during July. An annual
    $50,000 sinking fund payment is also made at that time.
    Dividends: A $10,000 dividend payment will be declared and made in July.
    Capital Expenditures: $40,000 will be invested in plant and equipment in June.
    Taxes: Income tax payments of $1,000 will be made in July.
    2. Given the information that follows, prepare a cash budget for the Central City
    department Store for the first 6 months of 19x2 under the following assumptions:
    a. All prices and costs remain constant.
    b. Sales are 75 percent for credit and 25 percent for cash.
    c. In terms of credit sales, 60 percent are collected in the month after the sale, 30
    percent in the second month, and 10 percent in the third. Bad-debt losses are
    insignificant.
    d. Sales, actual and estimated are
    October 19x1
    November
    19x2
    December
    19x2
    January 19x2
    February 19x2

    $300,000
    350,000

    March 19x2
    April 19x2

    $200,000
    300,000

    400,000

    May 19x2

    250,000

    150,000
    200,000

    June 19x2
    July 19x2

    200,000
    300,000

    e. Payments for purchases of merchandise are 80 percent of the following months


    anticipated sales.
    f. Wages and salaries are
    January
    February
    g.
    h.
    i.
    j.
    k.

    $30,000
    $40,000

    March
    April

    $50,000
    $50,000

    May
    June

    $40,000
    $35,000

    Rent is $2,000 a month.


    Interest of $7,500 is due at the end of each calendar quarter.
    A tax repayment on 19x2 income of $50,000 is due in April.
    A capital investment of $30,000 is planned in June.
    The company has a cash balance of $100,000 at December 31, 19x1, which is
    the minimum desired level for cash. Funds can be borrowed in multiples of
    $5,000 on a monthly basis. (Ignore interest on such borrowings.)

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