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The cash budget is the primary tool used in short-term financial planning. As with many calculations, the sales forecast is a primary input. As an
The cash budget is the primary tool used in short-term financial planning. As with many calculations, the sales forecast is a primary input. As an example of the cash budgeting process, we will use the Fun Toys Corporation. The sales projections and other information provided are: | ||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Sales | $ 200,000,000 | $ 300,000,000 | $ 250,000,000 | $ 400,000,000 | ||||||
Beginning receivables: | $ 120,000,000 | |||||||||
Receivables period (days): | 45 | |||||||||
With the receivables period shown, we can calculate the percentage of sales collected in the current quarter as: | ||||||||||
Percentage of sales received: | ||||||||||
With these projection, we can summarize Fun Toys' projected cash collection as: | ||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Beginning receivables | ||||||||||
Sales | ||||||||||
Cash collections | ||||||||||
Ending receivables | ||||||||||
Next, we need to consider cash disbursements. The cash disbursements will be in the form of payment of accounts payable, wages, taxes, and other expenses, capital expenditures, and long-term financing expenses. We have the following information concerning these disbursements: | ||||||||||
Purchases in previous quarter: | 60% | |||||||||
Payables period (days): | 90 | |||||||||
Wages, taxes, and other: | 20% | |||||||||
Interest and dividends: | $ 20,000,000 | |||||||||
Capital expenditure (Q2) | $ 100,000,000 | |||||||||
With the payables period shown, we can calculate the payments for the purchases made in the current quarter as: | ||||||||||
Purchases paid in the current quarter: | ||||||||||
Purchases paid in the next quarter: | ||||||||||
So, the cash disbursement projections are: | ||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Payment of accounts | ||||||||||
Wages, taxes, and other | ||||||||||
Capital expenditures | ||||||||||
Interest and dividends | ||||||||||
Total cash disbursements | ||||||||||
The total cash inflows for Fun Toys is projected to be: | ||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Total cash collections | ||||||||||
Total cash disbursements | ||||||||||
Net cash inflow | ||||||||||
To calculate the cash balance each quarter for Fun Toys, we need to know the beginning cash balance and minimum cash balance, which are: | ||||||||||
Beginning cash balance: | $ 20,000,000 | |||||||||
Minimum cash balance: | $ 10,000,000 | |||||||||
Finally, we can calculate the cash balance each quarter for Fun Toys, which is: | ||||||||||
Q1 | Q2 | Q3 | Q4 | |||||||
Beginning cash balance | ||||||||||
Net cash inflow | ||||||||||
Ending cash balance | ||||||||||
Minimum cash balance | ||||||||||
Cumulative surplus (deficit) |
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