Question

Singh Song Pte Ltd had an opening cash balance of $40, 000 as at 1st June 2020.
Budgeted sales were as follows:
$
May 2020 80,000
June 2020 90,000
July 2020 75,000
August 2020 75,000
Receipts from sales:
The company allows a cash discount of 2% if payment is made within the month of
sales and 1%discount if payment is made in the month following the sale. It is estimated
that 50% of the accounts receivable pay within the month of the sale, and a further 50%
pay in the month following the sale.
Purchases are expected to be 30% of the sales value. Purchases are paid for 1
month after sales. The trade supplier allows a 2% discount for all payment made
on time.
Salaries have been set at $30,000 per month and payable at the end of the month.
Overheads are set at $10,000 per month. The overheads are paid for in the
month incurred. Overheads include depreciation of $2,000 per month.
Renovations to the premises are to be undertaken in June 2020 for $100,000. This
will be paid for in two equal monthly installments starting in June 2020.
The owner withdraws cash of 6,000 monthly.

Required:
a) Prepare a Cash Budget for the business for each of the three months from
June to August 2020 showing the ending cash balance at the end of each
month.
b) Briefly explain the usefulness of preparing a cash budget.

Answer 1

KINDLY LET ME KNOW YOUR RESPONSE THROUGH YOUR RATINGS AND FEEL FREE TO ASK ANY FURTHER DOUBT

Ans of part A )

NOTE : As nothing have been mentioned about closing balance so i have taken closing balance of June as opening balance of July , closing balance of July as opening balance of August.  

Also from the amount of Overheads , amount of depreciation of $2000 has already been deducted and the net amount has been shown in ans.

I am uploading Cash budget , calculations of Sales figure and Purchase figures.

Ans of part B)

A cash budget is a document produced to help a business manage their cash flow. A cash budget is prepared in advance and shows all the planned monthly cash incomings (receipts) and any planned cash outgoings (payments).

Preparing a cash budget has a number of benefits:

• It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraft.
• It can help to regulate expenses. Any months where expenses are high will be highlighted by a cash budget.
• It will clearly show where a business has more cash than expected (surplus) or less cash than expected (deficit). This will allow a business to plan more effectively and make better decisions.

LET ME KNOW IF YOU HAVE ANY DOUBT IN UNDERSTANDING THE CALCULATIONS