Problem 2
From the information below, prepare a cash budget for a company for April,
May, and June 2019 in a columnar form.
Month
Sales
Purchases
Wages
Exp.
Jan. (actual)
80,000
45,000
20,000
5,000
Feb. (actual)
80,000
40,000
18,000
6,000
Mar. (actual)
75,000
42,000
22,000
6,000
Apr. Budget
90,000
50,000
24,000
6,000
May Budget
85,000
45,000
20,000
6,000
Jun. Budget
80,000
35,000
18,000
5,000
You are further informed that:

10% of purchases and 20% of sales are for cash.

The average collection period of the company is half a month
and credit purchases are paid off regularly after one month.

Wages are paid half monthly and the rent of $500, excluded in expense,
is paid monthly.

Cash and bank balance on April 1 was $15,000, and the company aims
to keep it below this figure at the end of every month. The excess cash is
placed in fixed deposits.
Solution
Cash Budget for 2019
April ($)
Cash & bank balance
May ($)
June ($)
15,000
11,700
12,700
Cash sale (20%)
18,000
17,000
16,000
Cash collections from Drs.
66,000
70,000
66,000
99,000
98,700
94,700
Cash flow (10%)
5,000
4,500
3,500
Payment of Crs.
37,800
45,000
40,500
Wages
23,000
22,000
19,000
Rent
500
500
500
Exp.
6,000
6,000
6,000
Fixed deposits
15,000
8,000
13,000
Cash balance (closing)
21,700
12,700
13,200
99,000
98,700
94,700
Add:
Less:
Cash outflow
Problem 3
From the following information, prepare a monthly cash budget for the three
months ending 31st December 2019.
Sales Materials Wages
($)
($)
($)
Jun.
3,000
1,800
650
Jul.
3,250
2,000
750
Aug.
3,500
2,400
750
Sep.
3,750
2,250
750
Oct.
4,000
2,300
800
Nov.
4,250
2,500
900
Dec.
4,500
2,600
1,000
The credit terms are as follows:
Month
Production
($)
225
225
250
300
300
350
350
Admin. Selling, etc
($)
160
160
175
175
200
200
225

Sales — 3 months to debtors. 10% of sales are in cash. On average, 50%
of credit sales are paid on the due dates, while the other 50% are paid
in the next month.

Creditors for material — 2 months.
The lag in payment for wages is 1/4 month and 1/2 month for overheads.
The cash and bank balance on 1st October is expected to be $1,500.
Other information is given as follows:

Plant and machinery are to be installed in August at a cost of $24,000.
This sum will be paid in monthly installments of $500 each from 1st
October.

Preference share dividends @ 5% on $50,000 are to be paid on 1st
December.

Calls on 250 equity shares @ $2 per share are expected on 1st
November.

Dividends from investments amounting to $250 are expected on 31st
December.

Income tax (advance) is to be paid in December $500
Solution
Cash Budget for Three Months Ending 31 Dec. 2019
Details:
Oct. ($)
Balance b/d
Nov. ($)
Dec. ($)
1,500.00
537.50
350.00
3,212.50
3,462.50
3,712.50
Capital
-
500.00
-
Dividends
-
-
250.00
4,712.50
4,500
4,312.50
2,400.00
2,250.00
2,300.00
Wages
787.50
875.00
975.00
Production
300.00
325.00
350.00
Receipts (estimated):
Sales
Total (A)
Payments:
Creditors
Overheads:
Adm. S. & D.
187.50
200.00
212.50
Pref. Dividend
-
-
2,500.00
-
-
500.00
5,00.00
5,00.00
5,00.00
4,175.00
4,150.00
7,337.50
537.50
350
(-3,025)
Income tax
Plant and Machinery (500 each)
Total (B) Year
Balance c/d (A - B)
Calculation of Amount of Sales
Month
Sale ($)
Jun.
3,000
Jul.
3,250
Aug.
3,500
Sep.
3,750
Oct.
4,000
Nov.
4,250
Dec.
4,500
Total
Calculation of Wages
Oct. ($)
1,350.00
1,462.50
400.00
3,212.50
Nov. ($)
December ($)
1,462.50
1,575.00
4,250
3,462.50
1,575.00
1,687.50
450.00
3,712.50
1/4 wages for September and 3/4 wages for October. Therefore, the
calculation is:
(1/4 x 750) = 187.50
3/4 x 800 = 600
Total = 787.50
The wages for the other months can be calculated using the same approach.
Do you want to further test your knowledge about budgeting? We have
prepared more quizzes for you.
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