Amira Ltd is a trading company that sells mobile phones. The opening cash balance on January 1 was expected to be £30,000. The sales budgeted were as follows:

Analysis of records shows that trade debtors settle their accounts as follow:
■ 60% of the trade debtors pay within the month of sales
■ 25% of the trade debtors pay the following month
■ 15% of the trade debtors pay the month after that
An extract from the purchases budget is as follows:
December 60,000
January 55,000
February 45,000
March 55,000
All purchases are on credit and experience shows that 90% are settled in the month of purchase and the balance settled the month after.

Wages are £15,000 per month and overheads of £20,000 per month including £5,000 depreciation are settled monthly.
Taxation of £8,000 has to be settled in February and the company will received settlement of an insurance claim of £25,000 in March.

Required

1. Prepare a cash budget for January, February, and March.
2. Comment on how management that ensure that the appropriate cash level is sustained.
3. Discuss the importance of cash budget to a business organization.

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November December January February March 80,000 90,000 75,000 75,000 80,000