Grants Co has planned a cash budget for the third quarter of 2020. The cash balance on July 1, 2020, is expected to be an overdraft of $82 000. Extracts from the Sales and Purchases Budgets for 2020 are as follows: Month Budgeted Sales Budgeted Purchases May $800 000 $700 000 June 900 000 600 000 July 750 000 550 000 August 650 000 450 000 September 800 000 500 000 Additional information: (I) All sales are on credit and an analysis of the records show that debtors settle according to the following pattern in accordance with credit terms 5/30, n90: 50% in the month of sale 30% in the month following sale 20% in second month following sale (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 suppliers – 10/30, n60. (III) Wages and salaries are expected to be $1 800 000 per annum and will be paid monthly as incurred. (IV) Fixed operating expenses that accrue evenly throughout the year are estimated to be $2,400,000 per annum (including depreciation on fixed assets of $60 000 per month) and will be settled monthly. (V) Estimated VAT expected to be settled in August 2020 - $80 000. (VI) The company is expected to receive a settlement of an insurance claim of $50 000 in September 2020. (VII) Interest on investment in Sagnet Inc. of $25 000 is expected in July 2020. (VIII) A short-term investment in government bonds of $80 000 will be liquidated in September 2020. (IX) The business has made arrangements with the Development Bank for a loan of $250 000 with the interest of 5% per annum. The loan will be disbursed in two portions: July 1, 2020 - $150 000 November 1, 2020 - $100 000 Interest will be paid monthly on amounts disbursed. Required: a) Prepare a Schedule of Expected Cash Collections from Customers for months July – September 2020. b) Prepare a Schedule of Expected Cash Disbursements to Suppliers for months July – September 2020. c) Prepare a Cash Budget for months July – September 2020.
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.
Grants Co has planned a
Extracts from the Sales and Purchases Budgets for 2020 are as follows:
|
Month |
Budgeted Sales |
Budgeted Purchases |
|
May |
$800 000 |
$700 000 |
|
June |
900 000 |
600 000 |
|
July |
750 000 |
550 000 |
|
August |
650 000 |
450 000 |
|
September |
800 000 |
500 000 |
Additional information:
(I) All sales are on credit and an analysis of the records show that debtors settle according to the following pattern in accordance with credit terms 5/30, n90:
50% in the month of sale
30% in the month following sale
20% in second month following sale
(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 suppliers – 10/30, n60.
(III) Wages and salaries are expected to be $1 800 000 per annum and will be paid monthly as incurred.
(IV) Fixed operating expenses that accrue evenly throughout the year are estimated to be $2,400,000 per annum (including
(V) Estimated VAT expected to be settled in August 2020 - $80 000.
(VI) The company is expected to receive a settlement of an insurance claim of $50 000 in September 2020.
(VII) Interest on investment in Sagnet Inc. of $25 000 is expected in July 2020.
(VIII) A short-term investment in government bonds of $80 000 will be liquidated in September 2020.
(IX) The business has made arrangements with the Development Bank for a loan of $250 000 with the interest of 5% per annum. The loan will be disbursed in two portions:
July 1, 2020 - $150 000
November 1, 2020 - $100 000
Interest will be paid monthly on amounts disbursed.
Required:
a) Prepare a Schedule of Expected Cash Collections from Customers for months July – September 2020.
b) Prepare a Schedule of Expected Cash Disbursements to Suppliers for months July – September 2020.
c) Prepare a Cash Budget for months July – September 2020.
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