Appendix 5: Cash Budget

Jim is planning to start a business .He has prepared the following budgeted Statement of Profit or loss for the initial four months trading.

Jim: Budgeted Statement of Profit or Loss

	Ksh	Ksh
Sales		22,000
Cost of sales:
Opening Stock	0
Purchases	21,000
Closing Inventory	(7,000)	14,000
Gross Profit		8,000
Less:
Cash Expenses	4,000
Depreciation	1000	(5000)
Net Profit		3,000

Jim also provides you with the following information regarding his plan:

Sales are to be made on two month`s credit .The sales figures in the budgeted statement of Profit or Loss are based on monthly sales as follows:

Ksh

Month 1 4,000

Month 2 6,000

Month 3 5,000

Month 4 7,000

Total sales 22,000

Purchases made in the first month must be paid for immediately. Subsequent purchases will be on one month`s credit .The purchases figure in the budgeted Statement of Profit or Loss is made up as follows:

Ksh

Month 1 6,000

Month 2 6,000

Month 3 4,000

Month 4 5,000

Total purchases 21,000

• Cash expenses are based on paying out ksh 10000 in each of the first four months of the business.
• Equipment is to be bought for Ksh 15,000 in the first month of the business. Depreciation of non-current assets is the Statement of Financial Position is at 20% per year on a straight line basis.
• Jim has Ksh 25,000 to invest in the business in month 1.
• Jim wishes to withdraw Ksh 2,000 from the business in month 4.

Required: Prepare a cash budget in receipt and payments format for the first four month period.