Cash Receipts Budgets:
• Details the expected cash collection during
a budget period.
• Example:
The budgeted credit is as on as follows:
November 80.000 L.E.
December 90.000 L.E.
January 75.000 L.E.
February 75.000 L.E.
March 80.000 L.E.
The analysis of records shows that debtors settle
according to the following patterns:
60% collected the month of sale.
25% the following month.
And 15% the month after.
Required: Prepare the cash receipts budget. •
:
November December February March
Sales 80000 90000 75000 80000
60% 48000 54000 45000 48000
25% 20000 18750 18750
15% 13500 11250
48000 74000 77250 78000
cash disbursements budget
Exercise:
ABC company expected to make instrument
purchase in the first quarter of 2004 as follows:
January 42.000. February 56.000. March
63.000. Purchase in December of 2003 is
expected to be 70.000. The company expects
that 10% of a month’s purchases will be paid in
the month of purchase and 90% will be paid in
the following month.
Required:
Prepare cash disbursements budget for each
month of the first quarter 2004.
Example: The budgeted purchases are as
follows:
December 60.000 L.E.
January 55.000 L.E.
February 45.000 L.E.
March 45.000 L.E.
The analysis of records shows that payments are
made according to the following patterns:
• 90% the month of sale and
• 10% the following month.
Required: Prepare the cash disbursements budget.
Solution:
December January March
Purchases 60000 55000 55000
90% 54000 49500 49500
10% 6000 4500
Total 54000 55500 54000
cash budget
• A cash budget (or cash flow forecast) is a
projection of the cash receipts and cash
payments for a future period.
• Cash flow is one of the most important
aspects of company's operating cycle.
Without cash, a business can not
function. But if cash balances are very
large, funds may not earn the best
possible rate of return. Low cash
reserves, however, may indicate that the
company can not pay current liabilities.
To prevent either of these problems,
careful cash planning is necessary. The
cash budget is the essential tool for this
planning.
The cash budget serves two
purposes:
First, it gives the ending cash balance,
which is needed to complete the
forecasted balance sheet in the master
budget. Thus, the cash budget holds a key
position in the master budget preparation
cycle.
• Second, the cash budget highlights
periods of excess cash reserves or cash
shortages. As a result, the budget director
can advice financial executives of times
when the company will need extra short-
term financing because of cash shortages,
and times when it will have excess cash
available for short-term investments
The Elements of a Cash Budget
• both inflows (receipts) and outflows
(payments).
