Question

Markissons’ Plastics Company has presented you with forecasted cash receipts and expenditure for the period April to June 2016. They are as follows:

     Cash Receipts Expenditure     $    $ March         75,000     April     69,000    73,000     May     77,000    39,000    June              105,000    59,000

Further analysis revealed the following:  Expenditure for the period March to June includes monthly depreciation of $4,000.  Payment for the cash related expenditure would be 25% in the month of purchase, the balance being paid the following month.  The company intends to sell all machinery valued at $30,000 in May.  Prepaid Insurance valued $16,500 is payable in July.  Opening cash balance as at April 1, $21,010.

Required: Prepare a monthly Cash Budget for Markissons’ Plastics Company for the period April to June 2016.                   ​

Answer 1

Cash Budget
Particular	April	May	June
Opening cash balance	21,010	19,510	66,010
Add: receipt
1) cash receipt	69,000	77,000	105,000
2) machinery sold		30,000
Total Receipt	90,010	126,510	171,010
Less: Expenditure
25% of cash expenditure in month of purchase	17,250 (69,000 x 25%)	8,750 (35,000 x 25%)	13,750 (55,000 x 25%)
75% of cash expenditure of previous month	53,250 (71,000 X 75%)	51,750 (69,000 x 75%)	26,250 (35,000 x 75%)
3) prepaid insurance premium*			16,500
Total expenditure	70,500	60,500	56,500
Closing Cash balance	19,510	66,010	114,510

Notes to above statement

* Prepaid insurance premium which is payable in July So, we have to assume that it is paid in June.

Cash expenditure considered after depreciation.