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GRADE 11
LESSON
WEEK 27 - Lesson 1 of 12
89
BUDGETS
Summary of grade 10 Budget concepts
WHAT IS A BUDGET
A Budget is a plan of how much money you expect to receive and how much you will need to pay out.
Most households and organizations draw up a budget as part of their financial planning. This also
includes the government, who is responsible for drawing up the National Budget.
REASONS FOR KEEPING A BUDGET

For planning purposes.
We will be able to see how much we can spend.
 For monitoring purposes.
We will be able to monitor our expenditure so that we do not overspend
Cash Budget
A cash budget shows estimates of future cash receipts and payments .Budgets are drawn up to
help management be aware of any potential shortages or surpluses of cash resources that could
occur. A cash budget deals only with transactions involving movement of cash, non –cash
expenses are not included.:
Capital Budget
Focuses on the amount of money the business entity will receive or spend on capital goods such
as Land and buildings, furniture, fittings, vehicles, office equipment etc.
WHAT FIGURES TO USE
Zero-base budget
The budget starts at zero and each item must be justified before it is included in the budget.
Spending is not based on the previous budget ,no money will be allocated for costs and
spending unless spending is justified .Each item of expenditure is re-evaluated to determine
whether or not it is required.
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89 Accounting Grade 11 - CAPS
Note: Our main area of focus this year is a Cash Budget
CASH BUDGETS
Importance of a Cash Budget
 The cash budget is an essential tool used to plan and monitor the liquidity of the business
enterprise .The management can ascertain whether the enterprise will have enough cash:
 To meet the short term commitments such as paying creditors and repaying
loans
 To purchase stock
 Purchase additional fixed assets
 Budgets will assist the enterprise to predict shortfalls and arrangements can be made
with the banks, and other sources of funding in advance.
 Budgeting improves decision making
 Many potential funders will require you to provide a budget in addition to a business plan,
particularly if you are new in business.
 Increase staff motivation as they have to meet targets.
The budget Period
Budget period
Short –term
Medium –term
Long –term
Maximum -12 months
1 to 2 years.
3 years or longer.
Points to consider when drawing the Budget
 The budget must be conservative i.e. it must be achievable and realistic
 Budgeted expenditure should not exceed budgeted income
 After the budget period the budgeted income and expenditure must be compared with the
actual figures.
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89 Accounting Grade 11 - CAPS
When a budget is prepared ,the inflow and outflow of cash is needed to be predicted
(forecast)
CASH RECEIVED (INFLOW)
Cash sales
Receipts from Debtors
Rent Income
Interest Received (on investments)
Investments matured
Proceeds from sale of fixed assets
Loans received
CASH PAID OUT (OUTFLOW)
Cash purchases of trading stock & fixed assets
Payments to creditors
Operating expenses e.g. rent, salaries, telephone etc.
Cash withdrawals by the owner
Cash invested
Purchase of fixed assets
Loans repaid
MAIN COMPONENTS OF THE BUDGET
Cash Receipts
Prediction of cash receipts (Inflow) for the budget period.
Cash Payments
Prediction of cash payments (Outflow )for the budget period
Cash Surplus /shortfall
Total cash receipts less total cash payments
Bank opening balance
The bank balance at the beginning of the budget period
Bank closing balance
The expected bank balance at the end of the budget period.
This section will cover



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Debtors’ collection schedule
Creditors’ payment schedule
Cash budget
Projected income statement
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89 Accounting Grade 11 - CAPS
ACTIVITY 1
Case study
Dineo runs a medium sized business providing plumbing and electrical services, four months
back she landed a contract of providing services to the Local Government .Dineo was given a
period of four months to install electric and plumbing pipes in 100 RDP houses, and she was
going to be paid after the completion of the job .
Dineo had to employ extra 5 employees, extra raw material, and equipment in order to
complete the job within the specified time. Two months before the completion of the contract,
Dineo started to experience the cashflow problems. She had also exhausted her personal
savings and cashed out the Fixed Investment. She needed to pay wages and buy more
material.Dineo approached the banks for finance but was not successful .She decided to go to
micro lenders who charged her the 30% interest that is very high compared to the 11.5% that
was charged by banks. The loan added costs to the business.
Answer the following questions:
1. Provide a list of problems that Dineo faces as a result of the contract she received from the
Local Government.
2. What kind of plan should Dineo have drawn up before she started the job, and how was this
plan going to help her?
3. Which action was she supposed to take so that she doesn’t run out of cash? Provide at least
two points.
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ANSWERS
LESSON
89
ACTIVITY 1
1. Provide a list of problems that Dineo faces as a result of the contract she received
from the Local Government.
Increase in expenditure:
 Wages paid to employees
 Raw material
 Capital expenditure (Equipment)
 Interest Expense(Micro- loans)
2. What kind of plan should Dineo have drawn up before she started the job, and how
was this plan going to help her?
 Dineo should have drawn up a cash budget.
 The budget could have anticipated/predicted the problems of cash flow.
3. Which action was she supposed to take so that she doesn’t run out of cash? Provide
at least two points.
 Negotiate to buy the supplies on credit (Raw material and Equipment)
 Re-arrange the payments so that he did not need to borrow money
 Apply for a short term loan from his bank, or an overdraft facility
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89 Accounting Grade 11 - CAPS