Topic 6: Cash Budget

What is a budget?

A budget is a financial plan of action.

Therefore, a cash budget is an estimation of the cash inflows and outflows for a business over a
period of time.

Question

On 30 September 20XX, the Statement of Financial Position (also known as Balance Sheet) of
Liverpool Limited showed the following position as indicated in Table 2.1.

Table 2.1 – Statement of Financial Position of Liverpool Limited as at

30 September 20XX.

Assets Liabilities and Equity

Fixed Assets (net) 280,000 Creditors 20,000

Stocks 120,000 Bank Loan 80,000

Debtors 150,000

Cash at bank 18 Capital 630,000

0,000

Total assets 730,000 Total liabilities and equity 730,000

The projected results for the next three months (October 20XX to December 20XX) are shown in
Table 2.2.

Table 2.2 – Expected results for October 20XX to December 20XX

October 20XX November 20XX December 20XX

Cash sales $48,000 $68,000 $88,000

Cash purchases 25,000 45,000 55,000

Credit sales 160,000 210,000 240,000

Credit purchases 90,000 110,000 140,000

Additional information:

(a) Rental of $8,000 per month will be paid at the beginning of every month.
(b) 80% of the credit sales in any particular month will be collected in the month the
sales are made and the remaining 20% will be collected in the following month.
All the debtors’ balance at 30 September 20XX will be collected in October
20XX.
(c) 70% of all credit purchases are paid in the month of purchases, the remaining
30% will be paid in the following month. All the creditors’ balance at 30
September 20XX will be paid in October 20XX.
(d) Commission to salesmen amounting to 10% of total monthly sales will be paid in
the month of sales.
(e) Additional fixed assets amounting to $300,000 will be acquired at the beginning
of October 20XX, to be paid in December 20XX.
(f) Total depreciation expense is estimated at $10,000 per month.

Required:

a) Prepare a cash collection schedule from cash sales and debtor.

b) Prepare a cash payment schedule for purchase and creditors.

c) Prepare the cash budget for the three months ending 31 December 20XX.
a) Cash collection schedule

October November December

Credit sales 160,000 210,000 240,000

80% 128,000 168,000 192,000

20% 150,000 32,000 42,000

Cash sales $48,000 $68,000 $88,000

Total cash receipts 326,000 268,000 322,000

b) Cash disbursement schedule

October November December

Credit purchase 90,000 110,000 140,000

70% 63,000 77,000 98,000

30% 20,000 27,000 33,000

Cash purchase 25,000 45,000 55,000

Total cash disbursement 108,000 149,000 186,000

c) Cash budget

October November December

Cash receipt 326,000 268,000 322,000

Cash disbursement 108,000 149,000 186,000

Rental 8,000 8,000 8,000

Salesmen commission 20,800 27,800 32,800

Purchase of fixed assets 300,000

Surplus/deficit 189,200 83,200 (204,800)

Opening cash balance 180,000 369,200 452,400

Closing cash balance 369,200 452,400 247,600