 Cash Budget

 Steps for Cash Budget

 Formula of Cash Budget
 Differentiate between cash and credit
sales in calculation
 Example: EDY ANANG (SEPTEMBER 2013)
 Past Semester Questions Related To
This Topic.
➢ The most important tool in cash management is the cash
budget .

➢ Cash budget is a statement that shows the firm projected

cash flows and outflows over some specified period.

➢ Cash budget can be constructed on a monthly, weekly, or

even a daily basis.

➢ Allow a firm to develop cash management strategies.

STEP 1: Determine the amount and timing of cash receipts.
The cash inflows are normally from cash sales, account receivable
and other non operating income; such as receipt of rental
properties and dividends received from holding of other companies
common stock.

STEP 2: Determine the amount and timing of cash disbursement.

All cash outflows whether it from operations and/or other bulk
purchases such as the purchases of machinery.

STEP 3: Determine the net cash flow.

The net cash flows equals to total cash receipts (STEP 1) minus
total cash disbursement (STEP 2).

STEP 4: Prepare the cash reconciliation accounts.

It takes into account the net cash flow, beginning cash balance and
minimum cash requirement to determine the firm’s cash position
after each budgeting period.
 There are a few points that should be made concerning this
example of the cash budget presented :

1) The cash budget example does not reflect income from the
investment of surplus cash.
2) If cash inflows and outflows are not uniform during the
month, the cash budget may overstate the firm’s financing
requirements.
3) Non cash expenses such depreciation does not actually
involve any actual cash flows and therefore not part of the
cash budget.
4) The cash budget represents a forecast, so all the values in
the budget are expected value.
5) The target cash balance should be adjusted over time, using
and falling with seasonal patterns and with longer term
changes in the site of the firm’s operations.
If collection is more than 100%, you need to deduct the cash
sales first. The balance will be credit sales.

Example:
20% cash sales
40% credit sales 1 month
40% credit sales 2 months
20% credit sales 3 months
120% more than 100%

If the total sales is RM100,000

How to calculate 20% of cash the sales?

20% x RM100,000 = RM20,000

How to calculate credit sales?

RM100,000 – RM20,000 = RM80,000

40% credit sales 1 month - 40% x RM80,000 = RM32,000

40% credit sales 2 months - 40% x RM80,000 = RM32,000
20% credit sales 3 months - 20 % x RM80,000 =RM16,000

If you add up all collection:

RM20,0000 + RM32,000 + RM32,000 + RM16,000
= RM100,000

Thus, RM100,000 will same with total sales (RM100,000).

Note: must excluded BAD DEBTS.

If collection is 100%, you can calculate cash and credit sales
straight away.

Example:
20% cash sales
30% credit sales 1 month
30% credit sales 2 months
20% credit sales 3 months
100% is equal to 100%

If the total sales is RM100,000

How to calculate 20% of cash the sales?

20% x RM100,000 = RM20,000

 30% credit sales 1 month - 30% x RM100,000 = RM30,000
30% credit sales 2 months - 30% x RM100,000 = RM30,000
20% credit sales 3 months - 20% x RM100,000 =RM20,000

If you add up all collection:

RM20,0000 + RM30,000 + RM30,000 + RM20,000

= RM100,000

Thus, RM100,000 will same with total sales (RM100,000).

Note: must excluded BAD DEBTS.

EXAMPLE: EDY ANANG (SEPTEMBER 2013)
1. June 2019, Part B (Question 2a)
MCMC Company
Prepare the cash budget for MCMC Company for the third quarter of
2019. (14 marks)

2. June 2018, Part B (Question 2a)

Zahra and Fatimah Company
Prepare the cash budget for Zahra and Fatimah Company for the third
quarter of 2018. (16 marks)

3. January 2018, Part B (Question 2a)

Farimida Corporation
Given the following information, construct a cash budget for Farimida
Corporation for the first quarter. (12 marks)