Accounting Practices 501

Chapter 14

Introduction to Cash Budgets

Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

Cash Budgets

• An electronic spreadsheet is used to prepare the Cash Budget

• The figures in the cash budget are shown at GST inclusive

• GST payment or refund need to be calculated

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A cash budget is a forecast of cash receipts and payments over a period

of time (usually one year)

Let’s start with the cash income received

Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

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The estimated Sales (GST inclusive) is given above and we will be preparing a Cash Budget for the 3 months April to June

Actual sales Estimated sales

Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

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Actual sales Estimated sales

Let’s say that Income is received as follows: 25% in the month of contract (would include the Cash Sales) 60% in the following month 15% in the month thereafter

25% of $17,250 = $4,313

60% of $13,800 = $8,280

15% of $11,500 = $1,725

60% of March will be received in April15% of Feb will be received in April

Cash received in April = 4,313+8,280+1,725 = $14,318

Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

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Actual sales Estimated sales

Let’s say that Income is received as follows: 25% in the month of contract (would include the Cash Sales) 60% in the following month 15% in the month thereafter

In the same way we can calculate the rest

14,318

15,295

11,788

Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

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Actual sales Estimated sales

14,318

15,295

11,788

Apr May June

Monthly Cash Budget for the three months ended 30 June 20X1

Receipts

Receipts from customers

14,318

15,295

11,788

We can now start the Cash Budget with the cash income each month

Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

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Actual sales Estimated sales

14,318

15,295

11,788

Apr May June

Monthly Cash Budget for the three months ended 30 June 20X1

Receipts

Receipts from customers

14,318

15,295

11,788

But, what about Purchases?

Let’s say that Purchases is 20% of each month’s total income and is

paid for in the following month

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Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

Actual sales Estimated sales

20% of $13,800 = $2,760

The Purchases of March will be paid in April

Let’s say that the Purchases is 20% of each month’s total

income and is paid for in the following month

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Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

Actual sales Estimated sales

The Purchases of March will be paid in April

In the same way we can calculate the rest

2,760 3,450 2,300

(20% of previous month)

Let’s say that the Purchases is 20% of each month’s total income and is paid in the

following month

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Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

Actual sales Estimated sales

Apr May June

Monthly Cash Budget for the three months ended 30 June 20X1

Receipts

Receipts from customers

14,318

15,295

11,788

Cost of Sales

Payments to suppliers

2,760 3,450

2,300

The Purchases cash outflow can now be added to the cash budget to

calculate the total cash inflow/outflow so far

Cash Inflow 11,558 11,845 9,488

Cash Inflow = Receipts from customers less Payments to suppliers

2,760 3,450 2,300

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Feb Mar Apr May June

Sales 11,500

13,800 17,250

11,500 9,200

Actual sales Estimated sales

Apr May June

Monthly Cash Budget for the three months ended 30 June 20X1

Receipts

Receipts from customers

14,318

15,295

11,788

Cost of SalesPayments to suppliers 2,760 3,45

02,300

Cash Inflow 11,558 11,845 9,488

2,760 3,450 2,300

So far ….so good