Lucas has prepared the following forecasts for four months ending to June to September2022.

Months Revenue (Rs) Purchases (Rs) Overheads(Rs) Other Expenses(Rs)

June 240 000 150 000 23 000 40 000

July 250 000 160 000 24 000 42 500

August 260 000 190 000 26 000 45000

September 245 000 155 000 28 000 47 500

The following information is also available:

1. 40% of sales are on a cash basis. The remainder of the sales are on credit and are paid one month after sales.

2. All purchases are on credit and are paid for one month after purchase.

3. Depreciation of Rs4 000 per month is included in other expenses.

4. Other expenses are paid one month in arrears.

5. Overheads are paid for in the month in which they are incurred.

6. Expected capital expenditure of Rs15 000 on new fittings in July 2022 with 10%payable in July and the balance on 14 September 2022.

7. The expected bank balance on 1 July 2022 is Rs24 000.

REQUIRED

a) Cash budget for the each of the three months ending July, August and September2022.(14 marks)

b) Explain three (3) advantages of preparing a cash budget.(6 marks)