CASH BUDGET

1. CASH BUDGET
CONCEPT;
BUDGET
A budget is a plan of action expressed in quantitative terms ‘’OR’’ is a
financial and quantitative statement prepared and approved prior to a
defined period of time, it may include income, expenditure and the
employment of capital.
-Budget may be prepared for the business as a whole for the departments,
for functionssuch as;
- Sales and production
- Financial and resource items such as; cash, capital, expenditures,
purchases, manpower etc.
- Examplesof budget are;
Sales budget
Productionbudget
Purchasesbudget
Productioncost budget
Selling and distributioncost budget
Cash budget
Budgeted profit and loss a/c and balancesheet
Benefits of budget
i.) These are a way of compiled planning, that is, in the presence of s
budgets, a firm has clear guidelines and the financial and human resources
canbe utilized to achieve some specific targetsor objectives.

2. ii.) The budget helps to improve communication and co-ordination among
the management and employees.
iii.) These are used to determine and evaluate performance of the business
enterprise.
iv.) The budgets help to clarify the authority and responsibility of
departmentalmanagersand other staffmembers.
CASH BUDGET
What isit?
Cash budget is prepared to show the expected cash receipts and payments
in next few monthsor one year period.
Themainfunctionsof cash budget areto such that;
i.) Ensure that cash is availablefor revenue expenditure.
ii.) To indicate when, where and how much cash will be needed and
whether , thisis permanent or temporary
iii.) Preserve liquiditythroughout theyear
iv.) Reveal surplus cash for investment or expansionof facilities
v.) Guide management on financing capital expenditure internally or
externally
The cash budget is affected by the following;
i.) Expansionor constructionofthe investment in fixed assets
ii.) Increaseor decreasein stocks and debtors
iii.) Rateof inflationanticipated
iv.) Policydecisionslike credit controls, dividendsand taxation

3. -The cash budget is not affected by the following;
i.) Provisionfor bad and doubtfuldebts
ii.) Provisionfor depreciation
→ Anything that cannot involve movement of money does not affect the
cash budget.
Illustration1
The following information was extracted from the books of Box Ltd. A
companywhich started tradingoneyear ago;
MONTH/YEAR SALES PURCHASES
April, 2008 150,000 100,000
May 160,000 110,000
June 160,000 90,000
July 170,000 90,000
August 200,000 80,000
September 200,000 130,000
October 180,000 140,000
November 180,000 60,000
December 200,000 60,000
ADDITIONAL INFORMATION;
A. Cash in hand at the end of may, 2008will be 180’000
B. 60% of the sales proceeds are received in the current month, 30% in the
following month and the balanceis received two monthsafter sale
C. Suppliersarepaid one month after delivery of goods
D. Corporation tax for 2007 amounting to 20’000 will be paid on 30th
September 2008

4. E. Contractors retation money amounted to 50’000 will be paid on 30th
June 2008
F. The shareholders at their last extra ordinary general meeting, increased
the share capital by 70’000 and the first call of 40’000 will be received in
October 2008
G. In October 2008, the company is due to receive 20’000/= as
compensationfor a civilsuit
H. The monthly administration expenses amounted to 33’000 include;
factorydepreciationchargefor 4’000 and preliminaryexpensesof 3’000
I. Office equipment worth 13’000 will be paid for in November, 2008
a. Required; prepare a cash budget for the period from 1st June
to 31st December.

5. WORKINGS;
Receipts
Sales * June 60% x 160,000 = 96,000
30% x 160,000 =48,000
10% x 150,000 = 15,000
159,000

6. Jul 60% x 170,000 =102,000
30% x 160,000 = 48,000
10% x 160,000 = 16,000
166,000
August 60% x 200,000 =120,000
30% x 170,000 =51,000
10% x 160,000 = 16,000
187,000
September 60% x 200,000 =120,000
30% x 200,000 =60,000
10% x 170,000 = 17,000
197,000
October 60% x 180,000 = 108,000
30% x 200,000 =60,000
10% x 200,000 = 20,000
188,000
November 60% X 180,000 = 100,000
30% X 180,000 = 54,000
10% X 200,000 = 20,000

7. 188,000
December 60% x 200,000 =120,000
30% x 180,000 = 54,000
10% x 180,000 = 18,000
192,000
ILLUSTRATION
Draw a cash budget for S&S Co. Ltd showing the balanceat the end of each
month from the following informationfor the six month ended 31
December 2012
a) Opening cash (including bank) balanceTshs 600
b) Salesat Tshs 20 per unit
2012
Marc
h
Apri
l
Ma
y
Jun
e
Jul
y
Augus
t
Septembe
r
Octobe
r
Novembe
r
Decembe
r
130 100 120 145 200 150 175 200 195 200
Debtorspay their accountsthreemonthsafter that inn which sales are
made.
c) Productioninunits
2012

8. Marc
h
Apri
l
Ma
y
Jun
e
Jul
y
Augus
t
Septembe
r
Octobe
r
Novembe
r
Decembe
r
120 135 150 160 175 185 190 170 155 125
d) Direct labour costs of Tshs. 8 per unit are payablein the month of
production
e) Raw materialsused in productioncostsTshs 5 per unit of this80% are
paid in the m nth of production.
f) Variableexpensesare Tshs. 2 per unit paid on half in the same month as
productionand half in the month following production.
g) Will receivea legacy of Tshs 1250 in December 2012 .
h) Fixed expenses of Tshs 200 per month payableeach month.
i) Drawing isto be Tshs 150 per month
j) Machinerycosting Tshs1000 to be paid for in October 2012.
SOLUTION ILLUSTRATION
Workings
PAYMENTS SCHEDULE
July
August
Raw materials 160(July) x 4Tshs = 640 175
(Aug) x Tshs 4=700
150 (June) x1Tshs = 150 160
(July) x Tshs 1= 160
Direct labour 160 xTshs8 = 1280 175 x
Tshs 8 =1400

9. Variable (150 x Tshs 1) +(160 x Tshs 1) = 310 (175
xTshs1) +(160 x1Tshs)=335
Fixed expenses =
200 =200
Drawings =150
=150
2730
2945
September October
Raw materials 185(Sept) x 4Tshs= 740 190 (Oct) x Tshs
4=760
175(Aug) x1Tshs= 175 185 (Sept) x
Tshs 1= 185
Direct labour 175 xTshs8 = 1480 190 x Tshs
8 =1520
Variable (185 x Tshs 1) +(175 x Tshs 1) = 360 (190 xTshs 1)
+(185x1Tshs)=375
Fixed expenses =
200 =200
Drawings =150
=150
Machinery
=1000
3105
4190
November December

10. Raw materials 170(Nov) x 4Tshs= 680 155 (Dec) x Tshs
4=620
190(October) x1Tshs=190 170 (Nov) x
Tshs 1= 170
Direct labour 170 xTshs 8 = 1360 155 x Tshs
8 =1240
Variable (170 x Tshs 1) +(190 x Tshs 1) = 360 (155 xTshs
1)+(170x1Tshs)=325
Fixed expenses =
200 =200
Drawings =150 =
150
2940
2705
Receipt Schedule
July August September October November December
Sales units 100 160 145 200 150 175
Selling
price(Tsh)
20 20 20 20 20 20
Collections 2000 3200 2900 4000 3000 3500
Legacy - - - - - 1250
Total
Receipt
2000 3200 2900 4000 3000 4750

11. NOTE: All figureswith bracketsarenegativeamount meanson all months
with negativecash there is bankoverdraft.