Question

For Cash Budgets:

-Cash Budget Structure?

–What are cash receipts based on?

–What expenses are paid in cash?

–What happens if there isn’t enough cash for the desired ending balance?

Answer 1

Cash Budget Format:

Cash Budget

For the period ending………..

What are cash receipts based on

Cash receipts We can prepare the cash receipts schedule based on how the company expects to collect on sales. We know, from past experience, how much of our sales are cash sales and how much are credit sales. We also can analyze past accounts receivable to determine when credit sales are typically paid.

Leed Company has determined that all sales are on credit and they do not have any cash sales. For the credit sales, experience tells Leed they will collect 60% of sales in the quarter of the sale and the remaining 40% is collected the quarter after the sale (yes, we understand collecting 100% is unlikely but Leed chooses to budget for 100% collection). Accounts Receivable at the beginning of the year is $200,000 and is expected to be collected in the 1st Quarter. Leed Company prepares the following schedule of planned cash receipts:

Leed Company
Schedule of Cash Receipts
	Qtr 1	Qtr 2	Qtr 3	Qtr 4
Budgeted Sales	$600,000	$1,600,000	$800,000	$1,000,000
Cash receipts, current quarter (60% x quarter sales)	360,000	960,000	480,000	600,000
	(600,000 x 60%)	(1,600,000 x 60%)	(800,000 x 60%)	(1,000,000 x 60%)
Cash receipts, from previous qtr (40% x previous quarter sales)	200,000**	240,000	640,000	320,000
		(600,000 x 40%)	(1.600,000 x 40%)	(800,000 x 40%)
Total Cash Collections from Sales	$560,000	$1,200,000	$1,120,000	$920,000

** Cash receipts from previous quarter for Quarter 1 comes from the beginning balance in Accounts Receivable.

We can calculate the ENDING balance of Accounts Receivable for the budgeted balance sheet by taking the 4th Quarter sales $1,000,000 x 40% to be received in 1st Quarter of the next year as $400,000. In addition to cash receipts, we also need to understand how we plan to make our cash payments or disbursements.

The amount of cash receipts in an accounting period is the money a company collects from the sales it makes in current and previous periods. A business typically collects a percentage of its sales in the quarter in which it makes them and collects the remaining portion in the following quarter. Your budgeted cash receipts are the amounts of cash you expect to collect based on the forecasted sales in your sales budget. You can calculate your budgeted cash receipts to help determine how much cash you have to use in your cash budget.

Determine based on your business’ accounting records the percentage of sales your company typically collects in the quarter in which it makes the sales. Determine the remaining percentage of sales your company typically collects in the quarter after it makes the sales. For example, assume your company collects cash payment on 60 percent of the sales in the quarter in which it makes the sales. Assume you collect the remaining 40 percent of the sales in the quarter after you make the sales.

What expenses are paid in cash

Cash disbursements Companies need cash to pay for purchases, wages, rent, interest, income taxes, cash dividends, and most other expenses. We can obtain the amount of each cash disbursement from other budgets or schedules.