Question

Give the following information, prepare a cash budget for Q1-Q4:

ABC Ltd. receives all income from sales:

Sales estimates (in millions): Q1 = 500; Q2 = 340; Q3 = 300; Q4 = 900; Q1 next year = 550

• Accounts receivable: Beginning receivables = $300
• Average collection period (ACP) = 15 days

Accounts payable

• Purchases = 75% of next quarter’s sales
• Beginning payables = 125
• Accounts payable period is 20 days

Other expenses

• Wages, taxes and other expense are 25% of sales
• Interest and dividend payments are $50
• A major capital expenditure of $200 is expected in the second quarter
• The initial cash balance is $100
• ACP = 20 days
• Minimum required cash balance per quarter is $30

Answer 1

Hi,

Please find below the answer to the cash budget question.

A certain portion of the question is incomplete so we need to make certain assumptions to derive the final numbers.

Assumptions:

The accounts receivable and accounts payables for the particular quarter were settled in the same quarter for Q1,Q2. We don't have clear information about this in the question.

ABC Ltd.
	Q1	Q2	Q3	Q4
Receipts
Beginning cash	$   100	$   395	$   225	$       30
Accounts receivables Total (a+b)	$   800	$   340	$   300	$     900
Opening balance(a)	$   300
Current(b)	$   500	$   340	$   300	$     900
Total Cash available	$   900	$   735	$   525	$     930
Payment of Cash
Accounts Payable Total (c+d)	$ (380)	$ (225)	$ (420)	$ (413)
Opening balance ©	$ (125)
Current(d)	$ (255)	$ (225)	$ (675)	$ (413)
Wages, taxes & other expenses	$ (125)	$   (85)	$   (75)	$ (225)
Interest and dividend payment				$     (50)
Capital expenditure		$ (200)
Total payments	$ (505)	$ (510)	$ (495)	$ (688)
Net cash position	$   395	$   225	$      30	$     243

Please let me know if you need any additional information or have any question or queries I will be happy to help.