Francis and Company has planned a cash budget for the third quarter of 2004. The cash balance on July 1, 2004 is expected to be an overdraft of $82,000. Extracts from the sales and purchases budgets are as follows: month budgeted sales budgeted purchases may $800, 000 june $900, 000 600, 000 july 750, 000 550, 000 August 650, 00
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Francis and Company has planned a
| month | budgeted sales | budgeted purchases |
| may | $800, 000 | |
| june | $900, 000 | 600, 000 |
| july | 750, 000 | 550, 000 |
| August | 650, 000 | 450, 000 |
| september | 800, 000 | 500, 000 |
i) All sales are on credit and an analysis of the records shows that debtors settle according to the following pattern, in accordance with the credit terms 5/30, n90:
50% in the month of sale
30% in the month following sale
20% the following month
ii) All purchases are on credit and past experience shows that 80% are settled in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance will be disbursed in the month after purchase.The credit terms of the suppliers - 10/30, n60.
iii) Wages and salaries are expected to be $1,800,000 per annum and are paid monthly.
iv) Fixed operating expenses, which accrue evenly throughout the year, are
estimated to be $2,400,000 per annum, (including
v)
vi) The company is expected to receive settlement on an insurance claim of
$50,000 in September.
vii) Interest on investment in other companies of $25,000 is expected in July 2004.
viii) A short-term investment in JMMB Ltd. of $80,000 will be liquidated in
September 2004.
ix) The business has made arrangements with their bankers for a loan of
$250,000. The loan will be disbursed in two tranches:
July 1, 2004 $150,000
November 1, 2004 $100,000
Required:
(a) Prepare a schedule of expected cash collections for sales for each of the months July to September.
(b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2004.
(c) Prepare a cash budget, with a total column, for the quarter ending September 30, 2004, showing the expected receipts and payments for each month.
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