The Cash Budget

Once we see how the components of the cash budget are calculated, it is just a matter of putting together an entire cash budget. It almost seems redundant to say, but a cash budget includes only cash items. So if a company makes sales on account, those are not included in the cash budget until cash is received on account. Similarly, a company may have non cash expenses. These are not included in the cash budget.

A company expects sales of $100,000 in July and expects sales of $115,000 in August. The company provided the following information:

a. Sales in the previous three months were:

April	$88,000
May	90,000
June	95,000

Of the sales, 10% are cash sales, the remaining are on account. The company experiences the following accounts receivable payment pattern: 25% in the month of sale, 50% in the month after sale, 20% in the second month after sale.

b. Purchases of goods are made the month before the anticipated sale at a rate of 60% of sales. Of monthly purchases, 25% are paid in the month of purchase, and the remaining 75% in the following month.

c. Wages for staff total $6,450 per month.

d. Telecommunications and utilities are $1,900 per month.

e. The property tax bill of $6,000 is due in August.

f. Insurance is paid quarterly at $1,200 per quarter. The next payment is due July 15.

g. Depreciation is $2,000 per month.

h. Advertising is budgeted at $2,000 per month in the summer months.

i. Professional fees (legal, bookkeeping, etc.) average $600 per month.

j. Maintenance is $800 per month.

k. Office supplies average $150 per month.

l. The owner took out a loan from her family and is paying it back at the rate of $4,000 per month.

m. The cash balance on July 1 was $2,190.

PLEASE correct the wrong answers. Thank you. For the final question, the options are either: liabilities and owner's equity for the coming year or income and cash flows for the coming year.

Develop a cash budget for July by filling in the following table. If an amount box does not require an entry, enter or leave the cell blank, Beginning cash balance, July 2,190 Add: Cash sales 10,000 Payments on accounts receivable: May June July Cash available 59,850 X 77,715X 81,450X 219,015 X 231,205 X Cash Disbursements: 62,250v 6,450 1,900 Wages Property tax Insurance 1,200 Advertising 2,000 Professional fees 600 800 150V 4,000 v Office supplies Loan payment 79,350 V Cash balance, July 31 Why is property tax zero? Property Taxes are to be Paid in August- not July Why is depreciation zero? Depreciation is a Noncash ExpenseV 151,855 X The Budgeted Balance Sheet and Statement of Cash Flows The budgeted balance sheet and budgeted statement of cash flows are pro forma statements. In other words, they are not based on historical values but instead are based on budgeted or expected numbers and presented in the correct format. The budgeted balance sheet shows the expected assets, sales, and liabilities for the coming year. X