MANAGEMENT ACCOUNTING - PREPARING CASH BUDGET

MANAGEMENT ACCOUNTING

Topic: Cash Budgeting

Before we go into cash budgeting proper, note that the main types of budgets are functional budget and master budget.

Sales budget: is the primary budget from which the majority of the other budgets are derived.

Cash budget shows detailed cash outflows and cash inflows. 

Master budget consists of the budgeted profit and loss and balance sheet.

THE PROBLEM:

Ambu Ltd has the following financial information:

a.     Budget sales:

2007                         N

April                     40,000      

May                     45,000

June                     55,000

July                      70,000

August                 80,000

September          60,000

b.    Realized Gross Profit: 30% of sales price

c.     Cash collection: 20% of sales will be made on one month credit, the remainder will be settled immediately.

d.    Payments to suppliers: Two months credits will be taken

e.     Wages and Salaries will be equal to 5% of the monthly forecast sales

f.       Rent of N16,000 p.a is considered reasonable.  This will be paid by equal quarterly installments in June, September, December, and March

g.     Overheads are estimated at 10% of turnover and one month credit will be taken

h.    New shop fittings will be purchased in July and August, N5,000 and N10,000 respectively; 2% prompt settlement discount will be claimed.

You are required to prepare a cash budget for six months ending 30^th September 2007.

SOLUTION TO THE PROBLEM:

Note that cash budget does not show any item that does not involve the movement of cash such as: 1. Provision for depreciation 2. Provision for doubtful debt 3. Provision for contingency.

Note also that turnover is called sales.

AMBU LTD

CASH BUDGET FOR THE SIX MONTHS ENDING SEPTEMBER, 2007

Months:-	April	May	June	July	August	September
INFLOWS: Credit sales Cash sales	N	N	N	N	N	N
	- 32,000	8,000 36,000	9,000 44,000	11,000 56,000	14,000 64,000	16,000 48,000
TOTAL INFLOW:	32,000	44,000	53,000	67,000	78,000	64,000
OUTFLOWS: Purchases: Payment to suppliers: Wages Rent Overhead New shop fittings	40,000 - 2,000 - - -	45,000 - 2,250 - 4,000 -	55,000 40,000 2,750 4,000 4,500 -	70,000 45,000 3,500 - 5,500 4,900	80,000 55,000 4,000 - 7,000 9,800	60,000 70,000 3000 4,000 8,000 -
TOTAL OUTFLOWS:	2,000	6,250	51,250	58,900	75,000	85,000
Cash Bal at beginning	-	30,000	67,750	69,500	77,600	79,800
Cash Bal at the end	30,000	67,750	69,500	77,600	78,800	58,800

Note: The Workings will be posted in a moment.  But please, feel free to email your observation or any area you need clarification to theotherwomaninmarriage@gmail.com

This question also solves the Cash Budget of Small Business Management.