Chapter 6 Appendix:

Cash Budget

Cash
Cash Budget
Budget
Contributes to more effective cash management
Shows managers the need for additional
financing before actual need arises
Indicates when excess cash will be available

Cash
Cash Budget
Budget
Cash Receipts Section
Cash Disbursements Section
Financing Section

Cash
Cash Budget
Budget
Cash Receipts Section
Includes expected receipts from the principal sources
of revenue usually cash sales and collections on
credit sales
Shows expected interest and dividends receipts as well
as proceeds from planned sales of investments, plant
assets, and capital stock

Cash Disbursements Section

Includes expected cash payments for direct materials
and labor, taxes, dividends, plant assets, etc.

Financing Section
Shows expected borrowings and repayments of borrowed
funds plus interest

Cash
Cash Budget
Budget
Must prepare in sequence:
Ending cash balance of one
period is the beginning cash
balance for the next
Data obtained from other
budgets and from management

Cash
Cash Budget
Budget
Step 1: Cash receipts:
The beginning balance + Cash receipts
= Cash available before financing
Cash receipts depend on accounts receivable, cash
sales, and miscellaneous recurring sources, such as
rental and royalty receipts.
Information on the expected collectability of AR is
needed for accurate prediction.
January 1, 2010 cash balance: $300,000
Sales: $9,282,000( Q1); $10,332,000(Q2); $10,246,000(Q3);
$8,140,000(Q4), Total: $38,000,000
collect 80% in quarter sold; 20% in next quarter;
collect December 31, 2009 Accounts Receivable in Quarter 1

Accounts receivable at Dec.31,2009: $1,711,000

Cash
Cash Budget
Budget
Step 2: Cash disbursements

Direct materials: paid in full three weeks after

the goods are delivered
Direct labor and other wage and salary outlays:
paid in the month the labor effect occurs.
Other costs: depending timing and credit terms
(Depreciation requires no cash payment)
Other disbursements: property, plant, equipment
and other long-term investment
Interest on long-term borrowing
Income tax payments

Financial
Financial Budgets:
Budgets: Cash
Cash Budget
Budget
Step 3: Financing effects
Depending on the relationship between
total cash available for needs and total cash needed.
Total cash available for needs =
beginning balance + cash receipts
Total cash needed=
Cash disbursements + desired minimum cash balance

Financial
Financial Budgets:
Budgets: Cash
Cash Budget
Budget
Step 3: Financing effects
If there is a deficiency of cash, loans obtained.
If there is excess of cash, any outstanding loans paid.
Assume: the desired minimum cash balance is
$350,000. Interest is computed and paid when
the principal is paid; interest rate 12% annually
Step 4: Ending cash balance
Total cash available for needs - Cash disbursements

Budgeted Income Statement

Budgeted Balance Sheet