prepare a cash budget
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.
On a separate sheet of paper, prepare a
Basic company has planned a cash budget for the first four months. Estimates show that P60,000 should be collected in January and April for the dividends to be received from investments in stock of other companies. Each month, operating expenses for wages, rents, lights and others estimated to be P100,000 plus 10% of the preceding month sales. Sales and collections on
50% collected in the month of sale
30% collected in the month following the sale2
0% collected in the second month following the sale
Payments for the merchandise purchased are scheduled so that 60% of the payments are made in the month of purchase with the balance paid the following month. The cash balance is estimated at P175,000 for January 1, 2006. Estimated net sales and purchases for the months are as follows:
Net Sales Purchases
November P 560,000 P 320,000
December 550,000 380,000
January 2006 640,000 420,000
February 700,000 400,000
March 650,000 350,000
April 580,000 280,000
An income tax payment of P75,000 is to be made in January and final payment of P100,000 is to be made in April. A loan repayment of P100,000 with P10,000 interest added will be made in February. Capital asset acquisition is scheduled for January for P100,000 and in March for P125,000. A minimum cash balance of P150,000 must be maintained at the end of each month.Amounts at bundles of P10,000 can be borrowed to finance any shortages which is assumed to be made at the beginning of every month. Interest per month is 2%. Interest and principal amount is paid at the end of the period.
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