Question

Project 3—Cash budgets and budgeted financial statements (Chapters 4 and 5)

Question 1

P. Tiro provides you with the following figures:

March actual sales $42,000

April budgeted sales              39,000

May budgeted sales               36,000

June budgeted sales               25,200

Sales are expected to be 70% credit and 30% cash and include GST. Invoices for credit sales are issued at the end of the month.

Accounts receivable pay:

70% within 30 days of invoice receiving 5% discount. Discount is recognized in the month it is allowed.

20% within 60 days

5% within 90 days.

5% bad debts.

Accounts receivable balances as at 31 March are $47,400. The ageing list shows that this balance is dissected as follows:

Month of sales          $

January                    3,600

February                  14,400

March                        29,400

Purchases (GST inclusive) are paid for in the month in which they are made. Budgeted purchases are:

April $24,000

May              22,800

June                12,000

Marketing expenses (GST inclusive) are budgeted at 10% of sales and are paid in the month they are incurred.

Other expenses are expected to be:

April $9,000

May                7,200

June                10,800

Other expenses are paid in the same month they are incurred and include GST except for depreciation. Depreciation is included in other expenses and is $3,000 per month

Equipment will be paid for on 15 June for $30,000 (including GST)

GST is accounted for by the cash method

Cash balance at 31 March is $48,000

Required

Prepare a cash budget for April, May, and June showing monthly figures.

Answer 1

Particulars	April	May	June
Opening Balance	48000	48411	53366
Inflows from
Cash Sales	11700	10800	7560
Account receivables of
January (70% of 3600 multiplied by 5%)	180	0	0
February (70% of 14400 multiplied by 20% and 5% respectively)	2880	720	0
March (70% of 29400 multiplied by 66.5%, 20% and 5% respectively)	19551	5880	1470
April (70% of 39000 multiplied by 66.5% and 20% repectively)	0	18155	5460
May (70% of 36000 multiplied by 66.5%)	0	0	23940
Sub-total	82311	83966	91796
Outflows from
Purchases	(24000)	(22800)	(12000)
Marketing expenses (10% of monthly sales)	(3900)	(3600)	(2520)
Other expenses (excluding depreciation of 3000 per month)	(6000)	(4200)	(7800)
Payment for equipment	0	0	(30000)
Closing Balance	48411	53366	39476

Note: The rate of 66.5% has been used for collection in the first 30 days to factor in for te 5% discount, as follows:-

Percentage of collectio withing first 30 days = 70

Discount on collection within first 30 days = 5%

Effective cash receipt rate = 70 * (1 - 0.05) = 66.5%