MANAGEMENT ACCOUNTING CASE
(FINANCIAL BUDGETING)
The president of Opal Products, has just approached the company’s bank with a request for a P30,000,
90-day loan. The purpose of the loan is to assist the company in acquiring inventories in support of peak
April sales. Since the company has had some difficulty in paying off its loans in the past, the loan officer
has asked for a cash budget to help determine whether the loan should be made. The following data are
available for the months April-June, during which the loan will be used:
a. On April 1, the start of the loan period, the cash balance will be P26,000. Accounts receivable on
April 1 will total P151,500, of which P141,000 will be collected during April and P7,200 will be
collected during May. The remainder will be uncollectible.
b. Past experience shows that 20% of a month’s sales are collected in the month of sale, 75% in the
following sale, and 4% in the second month following sale. The other 1% represents bad debts
that are never collected. Budgeted sales and expenses for the period follow:
Sales ………………………………….
Merchandise purchases ……………….
Payroll ………………………………..
Lease payments ………………………
Advertising …………………………..
Equipment purchases ………………..
Depreciation …………………………
April
P200,000
120,000
9,000
15,000
70,000
8,000
10,000
May
P300,000
180,000
9,000
15,000
80,000
10,000
June
P250,000
150,000
8,000
15,000
60,000
10,000
c. Merchandise purchases are paid in full during the month following purchase. Accounts payable
for merchandise purchases on March 31, which will be paid during April, total P108,000.
d. In preparing the cash budget, assume that the P30,000 loan will be made in April and repaid in
June. Interest on the loan will total P1,200.
If the company needs a minimum cash balance of P20,000 to start each month, can the loan be repaid as
planned? Explain. Show supporting computations by preparing a CASH BUDGET.
Schedule of Expected Cash Collections
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April
May
June
Quarter
From accounts
receivable
P141,000
P7,200
From April sales
P200,000*20%=
P40,000
P200,000*75%=
P150,000
P200,000*4%=
P8,000
P198,000
P300,000*20%=
P60,000
P300,000*75%=
P225,000
P285,000
P250,000*20%=
P50,000
P50,000
P283,000
P681,200
From May sales
From June sales
Total cash
collections
P181,000
P148,200
P217,200
 Notice that the merchandise purchases are paid in full during the month
following the purchase. Thus, we added the merchandise purchases in April to
the cash disbursements for the month of May instead.
 Depreciation does not result in cash outflow, and it does not deduct or add
anything to the cash budget.
(Cash deficiency, repayments and interest are indicated by a minus sign.)
Opal Products
Cash Budget
April
P26,000
May
P27,000
June
P20,200
Quarter
P26,000
181,000
207,000
217,200
244,200
283,000
303,200
681,200
707,200
108,000
9,000
15,000
70,000
8,000
210,000
(3,000)
120,000
9,000
15,000
80,000
0
224,000
20,200
180,000
8,000
15,000
60,000
0
263,000
40,200
408,000
26,000
45,000
210,000
8,000
697,000
10,200
30,000
0
0
30,000
P27,000
0
0
0
0
P20,200
0
(30,000)
(1,200)
(31,200)
P9,000
30,000
(30,000)
(1,200)
(1,200)
P9,000
Beginning cash balance
Add receipts:
Collections from customers
Total cash available
Less cash disbursements:
Merchandise purchases
Payroll
Lease payments
Advertising
Equipment purchases
Total cash disbursements
Excess (deficiency) of cash available
over disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance
As shown in the Cash budget, the minimum cash balance of P20,000 the company
needs to start each month is maintained or even exceeded in the periods covered
by the budget (April: P26,000; May: P27,000; June: P20,200). Despite the repayment
and interest in the month of June, the company is still able to maintain a positive
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cash balance (P9,000). Thus, it means that the loan can be repaid as planned in
case the company will accept the request.
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