Question

# The Cash Budget Once we see how the components of the cash budget are calculated, it...

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.

Develop a cash budget for July by filling in the following table. If an amount box does not require an entry, enter "0" or leave the cell "blank".

 Beginning cash balance, July 1 2,190 Add: Cash sales 10,000 Payments on accounts receivable: May 59,850 (WRONG) June 77,715 (WRONG) July 81,450 (WRONG) 219,015 (WRONG) Cash available 229,015 (WRONG) Cash Disbursements: Purchases 62,250 Wages 6,450 Telecommunications 1,900 Property tax 0 Insurance 1,200 Depreciation 0 Advertising 2,000 Professional fees 600 Maintenance 800 Office supplies 150 Loan payment 4,000 Total disbursements 79,350 Cash balance, July 31 151,855 (WRONG)

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