Cash BudgetCash Budget
Contributes to more effective cash management
Shows managers the need for additional financing before actual need arises
Indicates when excess cash will be available
Cash BudgetCash Budget
Cash Receipts SectionIncludes expected receipts from the principal sources of revenue – usually cash sales and collections on credit salesShows expected interest and dividends receipts as well as proceeds from planned sales of investments, plant assets, and capital stock
Cash Disbursements SectionIncludes expected cash payments for direct materials and labor, taxes, dividends, plant assets, etc.
Financing SectionShows expected borrowings and repayments of borrowed funds plus interest
Cash BudgetCash Budget
Must prepare in sequence: Ending cash balance of one
period is the beginning cash balance for the next
Data obtained from other budgets and from management
Cash BudgetCash Budget
Step 1: Cash receipts: The beginning balance + Cash receipts = Cash available before financing
Cash receipts depend on accounts receivable, cash sales, and miscellaneous recurring sources, such as rental and royalty receipts.
Information on the expected collectability of AR is needed for accurate prediction.
January 1, 2010 cash balance: $300,000
Sales: $9,282,000( Q1); $10,332,000(Q2); $10,246,000(Q3);
$8,140,000(Q4), Total: $38,000,000
collect 80% in quarter sold; 20% in next quarter;collect December 31, 2009 Accounts Receivable in
Quarter 1
Accounts receivable at Dec.31,2009: $1,711,000
Cash BudgetCash Budget
Step 2: Cash disbursements
Direct materials: paid in full three weeks after the goods are delivered
Direct labor and other wage and salary outlays: paid in the month the labor effect occurs.
Other costs: depending timing and credit terms (Depreciation requires no cash payment)
Other disbursements: property, plant, equipment and other long-term investment
Interest on long-term borrowing Income tax payments
Financial Budgets: Cash BudgetFinancial Budgets: Cash Budget
Step 3: Financing effects
Depending on the relationship between total cash available for needs and total cash
needed.
Total cash available for needs = beginning balance + cash receipts
Total cash needed= Cash disbursements + desired minimum cash
balance
Financial Budgets: Cash BudgetFinancial Budgets: Cash Budget
Step 3: Financing effects
If there is a deficiency of cash, loans obtained.If there is excess of cash, any outstanding loans
paid. Assume: the desired minimum cash balance is
$350,000. Interest is computed and paid when the principal is paid; interest rate 12% annually
Step 4: Ending cash balance
Total cash available for needs - Cash disbursements
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