Accounting Practices 501 Chapter 14 Introduction to Cash Budgets Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

Cash Budgets An electronic spreadsheet is used to prepare the Cash Budget The figures in the cash budget are shown at GST inclusive GST payment or refund need to be calculated Ch14A - Cash budgets (intro) 2 A cash budget is a forecast of cash receipts and payments over a period of time (usually one year) Let’s start with the cash income received

FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Ch14A - Cash budgets (intro) 3 The estimated Sales (GST inclusive) is given above and we will be preparing a Cash Budget for the 3 months April to June Actual salesEstimated sales

FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Ch14A - Cash budgets (intro) 4 Actual salesEstimated sales Let’s say that Income is received as follows: 25% in the month of contract (would include the Cash Sales) 60% in the following month 15% in the month thereafter 25% of $17,250 = $4,313 60% of $13,800 = $8,280 15% of $11,500 = $1,725 60% of March will be received in April 15% of Feb will be received in April Cash received in April = 4,313+8,280+1,725 = $14,318

FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Ch14A - Cash budgets (intro) 5 Actual salesEstimated sales Let’s say that Income is received as follows: 25% in the month of contract (would include the Cash Sales) 60% in the following month 15% in the month thereafter In the same way we can calculate the rest 14,31815,29511,788

FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Ch14A - Cash budgets (intro) 6 Actual salesEstimated sales 14,31815,29511,788 AprMayJune Monthly Cash Budget for the three months ended 30 June 20X1 Receipts Receipts from customers14,31815,29511,788 We can now start the Cash Budget with the cash income each month

FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Ch14A - Cash budgets (intro) 7 Actual salesEstimated sales 14,31815,29511,788 AprMayJune Monthly Cash Budget for the three months ended 30 June 20X1 Receipts Receipts from customers14,31815,29511,788 But, what about Purchases? Let’s say that Purchases is 20% of each month’s total income and is paid for in the following month

Ch14A - Cash budgets (intro) 8 FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Actual salesEstimated sales 20% of $13,800 = $2,760 The Purchases of March will be paid in April Let’s say that the Purchases is 20% of each month’s total income and is paid for in the following month

Ch14A - Cash budgets (intro) 9 FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Actual salesEstimated sales The Purchases of March will be paid in April In the same way we can calculate the rest 2,760 3,4502,300 (20% of previous month) Let’s say that the Purchases is 20% of each month’s total income and is paid in the following month

Ch14A - Cash budgets (intro) 10 FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Actual salesEstimated sales AprMayJune Monthly Cash Budget for the three months ended 30 June 20X1 Receipts Receipts from customers14,31815,29511,788 Cost of Sales Payments to suppliers2,760 3,4502,300 The Purchases cash outflow can now be added to the cash budget to calculate the total cash inflow/outflow so far Cash Inflow11,55811,8459,488 Cash Inflow = Receipts from customers less Payments to suppliers 2,760 3,4502,300

Ch14A - Cash budgets (intro) 11 FebMarAprMayJune Sales 11,50013,80017,25011,5009,200 Actual salesEstimated sales AprMayJune Monthly Cash Budget for the three months ended 30 June 20X1 Receipts Receipts from customers14,31815,29511,788 Cost of Sales Payments to suppliers2,760 3,4502,300 Cash Inflow11,55811,8459,488 2,760 3,4502,300 So far ….so good