Cash Budget Definition

The cash budget contains an itemization of the projected sources and uses
of cash in a future period. This budget is used to ascertain whether company
operations and other activities will provide a sufficient amount of cash to
meet projected cash requirements. If not, management must find additional
funding sources.

Format of a cash Budget

Particulars

Jan.
--

Month/weeks
Feb.
--

Mar.
--

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-----

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(Uses of cash) Payments:

+Cash Purchases
+Payment to creditors
+Direct materials
+Direct Wages
+Manufacturing overheads
+Selling and adm. Expenses
+Selling commission
+Asset Purchases
+Dividend payments
+Purchase of machinery
+Insurance
Total Payments (B)

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Balance c/d (A-B)

--

--

--

Balance cash b/d:

(Sources of cash)Receipts:
+Cash Sales
+ Accounts receivable collected
+Asset Sales
Total cash available (A)

Q.1 From the following particulars make out a cash budget of High skies Ltd.
from October to December 2008.
Months

Sales

Purchases

July (Actual)
August (Actual)
Sep. (Actual)
Oct. (Budgeted)
Nov. (Budgeted)
Dec. (Budgeted)

3,00,000
3,50,000
4,00,000
6,00,000
4,50,000
5,00,000

1,00,000
1,50,000
2,00,000
3,00,000
2,50,000
2,00,000

Wages &
Expenses
60,000
70,000
64,000
80,000
72,000
60,000

Other information:
1. Credit allowed to customers for 2 months and from creditors 1 month.
2. Lag in payment of wages and expenses month.
3. Advance tax to be paid in Nov. Rs. 25,000.
4. Insurance @ Rs. 5,000 payable in every month which is not included in the
above wages and expenses.
5. Machinery purchased in December amounted to Rs. 1,50,000.
6. 10% sales and purchases are made for cash.
7. Selling commission is payable @ 5% on sales payable in the third month
from the month of sales.
8. The bank balance on 1st October is Rs. 1,00,000.

Q.1 Prepare cash budget of Blue Sky Ltd. for April, May and June 2015 from
the following information:
Months
Jan(Actual)
Feb (Actual)
Mar (Actual)
April
(Budgeted)
May (Budgeted)
June
(Budgeted)

Sales
80,000
80,000
75,000
90,000

Purchases
45,000
40,000
42,000
50,000

Wages
20,000
18,000
22,000
24,000

Expenses
5,000
6,000
6,000
7,000

85,000
80,000

45,000
35,000

20,000
18,000

6,000
5,000

Additional information:
1. 10% of the purchases and 20% of sales are for cash.
2. The average collection period of the company is month and the credit
purchases are paid off regularly after one month.
3. Wages are paid half monthly and the rent of Rs. 500 included in expenses
is paid monthly.
4. Cash and bank balance as on April 1 was Rs. 15,000 and the company
wants to keep it at the end of every month below Rs. 15,000 ( but not less
than Rs 14,000), the excess cash being put in fixed deposits in multiples of
Rs. 1000.
Q.2 X Ltd. starts manufacturing on 1 st January. The prime cost of a unit is
expected to be Rs. 20, out of which Rs.8 is for materials and Rs.12 for labour.
In addition, variable expenditure per unit is expected Rs. 4 and fixed
expenses per month will be Rs. 15,000. Payment for materials is to be made
in the month following the purchases. One third of sales will be cash and rest
on credit for settlement in the following month. Expenses are payable in the
month in which they are incurred.
The selling price is fixed at Rs. 40 per unit. The number of units
manufactured and sold is expected to be as under:
Month
Jan
Feb
March

Units
900
1,200
1,800

April
2,100
May
2,100
June
2,400
Draw up a cash forecast ignoring the question of stocks.