these slides are based on the grade 11 accounting topic budgets. created by Miss SY MASEKO.

1. ACCOUNTING GRADE 11
BUDGETS
MISS SY MASEKO 25 AUGUST

2. WHAT IS A BUDGET
IS A PLAN OF HOW MUCH MONEY YOU EXPECT TO RECEIVE AND HOW MUCH YOU WILL NEED
TO PAY OUT.
HOUSEHOLDS AND ORGANIZATIONS DRAW UP A BUDGET AS PART OF THEIR FINANCIAL
PLANNING.

3. REASONS FOR KEEPING A BUDGET
FOR PLANNING PURPOSES.
WE WILL BE ABLE TO SEE HOW MUCH WE CAN SPEND.
FOR MONITORING PURPOSES.
WE WILL BE ABLE TO MONITOR OUR EXPENDITURE SO THAT WE DO NOT OVERSPEND

4. Cash Budget
A cash budget shows estimates of future cash receipts and payments
.Budgets are drawn up to help management be aware of any potential
shortages or surpluses of cash resources that could occur. A cash
budget deals only with transactions involving movement of cash, non –
cash expenses are not included.:
Capital Budget
Focuses on the amount of money the business entity will receive or
spend on capital goods such as Land and buildings, furniture, fittings,
vehicles, office equipment etc.

5. WHAT FIGURES TO USE
ZERO-BASE BUDGET
THE BUDGET STARTS AT ZERO AND EACH ITEM MUST BE JUSTIFIED BEFORE IT
IS INCLUDED IN THE BUDGET. SPENDING IS NOT BASED ON THE PREVIOUS
BUDGET ,NO MONEY WILL BE ALLOCATED FOR COSTS AND SPENDING UNLESS
SPENDING IS JUSTIFIED .EACH ITEM OF EXPENDITURE IS RE-EVALUATED TO
DETERMINE WHETHER OR NOT IT IS REQUIRED.
• NOTE: OUR MAIN AREA OF FOCUS THIS YEAR IS A CASH BUDGET

6. CASH BUDGETS
IMPORTANCE OF A CASH BUDGET
 THE CASH BUDGET IS AN ESSENTIAL TOOL USED TO PLAN AND MONITOR THE
LIQUIDITY OF THE BUSINESS ENTERPRISE .THE MANAGEMENT CAN
ASCERTAIN WHETHER THE ENTERPRISE WILL HAVE ENOUGH CASH:
 TO MEET THE SHORT TERM COMMITMENTS SUCH AS PAYING CREDITORS
AND REPAYING LOANS
 TO PURCHASE STOCK
 PURCHASE ADDITIONAL FIXED ASSETS

7.  Budgets will assist the enterprise to predict shortfalls and
arrangements can be made with the banks, and other
sources of funding in advance.
 Budgeting improves decision making
 Many potential funders will require you to provide a budget in
addition to a business plan, particularly if you are new in
business.
Increase staff motivation as they have to meet targets

8. THE BUDGET PERIOD
Budget period
Short –term
Maximum -12
months
Medium –term
1 to 2 years.
Long –term
3 years or longer.

9. POINTS TO CONSIDER WHEN DRAWING THE
BUDGET
 THE BUDGET MUST BE CONSERVATIVE I.E. IT MUST BE ACHIEVABLE AND
REALISTIC
 BUDGETED EXPENDITURE SHOULD NOT EXCEED BUDGETED INCOME
 AFTER THE BUDGET PERIOD THE BUDGETED INCOME AND EXPENDITURE
MUST BE COMPARED WITH THE ACTUAL FIGURES.

10. When a budget is prepared ,the inflow and outflow of cash is needed to be predicted
(forecast)
CASH RECEIVED (INFLOW) CASH PAID OUT (OUTFLOW)
Cash sales Cash purchases of trading stock & fixed assets
Receipts from Debtors Payments to creditors
Rent Income Operating expenses e.g. rent, salaries, telephone
etc.
Interest Received (on investments) Cash withdrawals by the owner
Investments matured Cash invested
Proceeds from sale of fixed assets Purchase of fixed assets
Loans received Loans repaid

11. MAIN COMPONENTS OF THE BUDGET
Cash Receipts Prediction of cash receipts (Inflow) for the budget period.
Cash Payments Prediction of cash payments (Outflow )for the budget period
Cash Surplus /shortfall Total cash receipts less total cash payments
Bank opening balance The bank balance at the beginning of the budget period
Bank closing balance The expected bank balance at the end of the budget period.

12. THIS SECTION WILL COVER
 DEBTORS’ COLLECTION SCHEDULE
 CREDITORS’ PAYMENT SCHEDULE
 CASH BUDGET
 PROJECTED INCOME STATEMENT

13. DEBTORS’ COLLECTION SCHEDULE
SALES BUDGET
THE SALES BUDGET OF THE BUSINESS WILL INCLUDE THE BUDGETED CASH
SALE AND BUDGETED CREDIT SALE IF THEY DO TRADE ON CREDIT.
CREDIT SALES
YOU NEED TO TAKE INTO CONSIDERATION THAT WHEN GOODS ARE SOLD ON
CREDIT:
PROPER SCREENING OF CUSTOMERS SHOULD BE DONE
COMPLIANCE WITH NATIONAL CREDIT ACT .(YOU CANNOT GIVE A DEBT TO A
CUSTOMER WHO CANNOT AFFORD PAYING BACK)
SALES WILL INCREASE AND THE ALSO THE RISK OF BAD DEBTS
ADMINISTRATIVE EXPENSES WILL ALSO INCREASE, MAINTAINING AND
MONITORING DEBTORS’ ACCOUNTS.

14. DEBTORS’ COLLECTION SCHEDULE
REFLECTS THE AMOUNTS EXPECTED TO BE OWED BY DEBTORS AND AS WELL
AS RECEIPTS FROM DEBTORS.
THE FOLLOWING INFORMATION IS USED TO PREPARE THE DEBTORS
SCHEDULE:
EXPECTED CREDIT SALES TO DEBTORS
ACTUAL CREDIT SALES
CREDIT POLICY THAT DETERMINES PERIOD FOR COLLECTING DEBTORS
ACCOUNTS, THE TRADER MUST CLEARLY INDICATE THE CREDIT TERMS TO BE
ALLOWED E.G.30 DAYS, 60 DAYS, 90 DAYS ETC.
THE CASH DISCOUNT, THE CUSTOMER CAN BE ENTITLED TO WHEN HE PAYS
BEFORE THE STIPULATED DATE.
ADVANCED EXERCISES WILL PROVIDE YOU WITH THE BALANCE OF DEBTORS
CONTROL AND AMOUNTS TO BE RECEIVED FROM DEBTORS.

15. LET’S DO AN EXERCISE TO CLARIFY THIS
CONCEPT
GREEN STORE’S CREDIT SALES WERE AS FOLLOWS:
Month Actual Budgeted
July 80 000
August 90 000
September 96 000
October 100 000
November 110 000

16. Debtors usually settle their accounts as follows
 50% during the month of sales (transaction month)
 30% during the month following the month of sales (one month after
sales / 30 days)
 18% during the second month after sales (two months after sale / 60
days)
 2% irrecoverable debts (bad debts/ 90 days)
Required
Calculate the expected collections from debtors during the budgeted
months of September, October and November.

17. Solution Debtors Collection Schedule
 Always start with the Actual sales when preparing the debtors collection
schedule

18. Debtors collection schedule
Month Credit sales Terms
Collection period
September October November
July 80 000 × 50 % (July) same month
× 30 % (Aug) 30 days
× 18 % (Sept) 60 days 14 400
Aug 90 000 × 50 % (Aug)
× 30 % (Sept) 27 000
× 18 % (Oct ) 16 200
Sept 96 000 × 50 % (Sept ) 48 000
× 30% (Oct ) 28 800
× 18 % (Nov) 172 80
Oct 100 000 × 50 % (Oct) 50 000
× 30 % (Nov ) 30 000
× 18 % (Dec )
Nov 110 000 × 50% (Nov) 55 000
× 30% (Dec)
× 18% (Jan)
Receipts from debtors 89 400 95 000 102 280

19. OR Debtors’ collection schedule
Month Credit sales
Terms
Collection period
September October November
50 % 30 % 18 %
July 80 000 14 400
Aug 90 000 27 000 16 200
Sept 96 000 48 000 28 800 17 280
Oct 100 000 50 000 30 000
Nov 110 000 55 000
Receipts from debtors 89 400 95 000 102 280

20. Transfer amounts from Debtors’ collection schedule to Cash budget
September October November
Cash Receipts
Cash Sales xxx xxx xxx
Receipts from debtor 89 400 95 000 102 280

21. BUDGETED CREDIT SALES AND CASH SALES
EXAMPLE 1
MAKE USE OF THE INFORMATION PROVIDED BELOW TO DRAW UP THE DEBTORS
COLLECTION PERIOD FOR THE THREE MONTH PERIOD 01JANUARY 2013 TO 31 MARCH
2013.
Month Actual Budgeted
November 60 000
December 80 000
January 50 000
February 52 000
March 60 000

22. Debtors usually settle their accounts as follows
 60 % of debtors pay one month after the date of sale
 20 % of debtors pay two months after the date of
sale
 15 % of debtors pay three months after the date of
sale
 5 % irrecoverable debts (bad debts)
Note: Cash sales is 40% of total sales

23. Solution Debtors Collection Schedule
Month Credit sales Terms
Collection period
January February March
Nov 36 000 × 60 % (Dec)
× 20 % (Jan) 7 200
× 15 % (Feb) 5 400
Dec 48 000 × 60 % (Jan) 28 800
× 20 % (Feb) 9 600
× 15 % (Mar) 7 200
Jan 30 000 × 60 % (Feb) 18 000
× 20% (Mar) 6 000
× 15 % (Apr)
Feb 31 200 × 60 % (Mar) 18 720
× 20 % (Apr )
× 15 % (May )
Mar 36 000 × 60% (Apr)
× 20% (May)
× 15% (June)
Receipts from debtors 36 000 33 000 31 920Calculations : always start with the actual sales followed by budgeted

24. HOW THESE FIGURES APPEAR
THE BUDGETED CASH SALES FIGURE
• EXTRACT FROM THE CASH BUDGET
January February March
Cash Receipts
Cash Sales 20 000 20 800 24 000
Receipts from debtor 36 000 33 000 31 920
The total projected sales figures
Extract from the Projected Income Statement
January February March
Sales 50 000 52 000 60 000

25. Credit sales Budgeted cash sales
November 60 000 x 60% = 36 000 January 50 000 x 40% = 20 000
December 80 000 x 60 % = 48 000 February 52 000 x 40% = 20 800
January 50 000 x 60% = 30 000 March 60 000 x 40% = 24 000
February 52 000 x 60% = 31 200
March 60 000 x 60% = 36 000