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Question 1

Alberta Limited needs a cash budget for the month of November. The
following information is available:

The cash balance on November 1 is $6,000.

Sales for October, November and December are $80,000, $60,000 and
$75 000 respectively. Cash collections on sales are 30 percent in the
month of sale, 65 percent in the following month, and 5 percent
uncollectible.
General expenses are budgeted to be $25,000 per month (depreciation
represents $2,000 of this amount).
Inventory purchases will total $30,000 in October and $40,000 in
November and $40 000 in December. Half of the inventory purchases
are always paid for in the month of purchase. The remainder is paid
for in the following month.
Office furniture costing $4,000 will be purchased for cash in November,
and sales commissions are budgeted at $12,000 for December.
The company must maintain a minimum ending cash balance of
$4,000 and can borrow from the bank in multiples of $100. All loans
are repaid after 60 days.

Prepare a cash budget in good form for Alberta Limited for November and
December.

Question 2
Glenda Byers has gathered the data below needed for the preparation of a
cash budget for the months of October, November, and December.
SALES: (Actual sales for August and September, forecasted sales for
October - February)
August

$ 45,000

September

54,000

October

65,000

November

75,000

December

93,000

January

71,000

February

55,000

Based on the past history and current credit terms offered by her firm,
Glenda has estimated the following payment schedule for sales:
25% of total sales will be cash sales;
60% of total sales will be collected in the month following the sale;
15% of total sales will be collected in the second month following the
sale.
PURCHASES
Based on current credit terms, Glenda expects the following repayment
schedule:
12% of purchases are paid for in cash;
78% are paid one month following the purchase, and
10% are paid for two months after the purchase.

Purchases are as follows:

August

32 400

September

39 000

October

45 000

November

55 800

December

42 600

EXPENSES (per month, unless otherwise noted):


Mortgage Payment
$ 2,300
Wages and Salaries
3,200
Lease Payments
750
Capital purchases (to be purchased in
October)

7,600

Property Taxes (to be paid in December)


11,800

Other Expenses (%)


10% of sales

FURTHER ASSUMPTIONS
1. Cash:

As of October 1st, the firm has $3,000 in its checking account at


the bank.

The firm desires to have a minimum cash balance of $3,000 at all


times.

2. Loan Information:

As of October 1st, the company's loan balance was $2,000.

The companys bank requires that interest be paid each month.


The interest to be paid is the interest due on the previous month's loan
balance. The interest rate is 1.0% per month on the outstanding
balance at the end of the previous month.

Required: Prepare a cash budget for October, November and December

Question 3
Pierre Blanc has been trading for some years as a retailer of cheese. His bank
account is
expected to have an overdrawn balance of 3,100 at 31 March 2012, and
Pierre needs to
show his bank manager that this can be reduced over the following 3
months. The details
of his expenditure are as follows:
1. Sales, which are all made for cash, are expected to be as follows:
$

April 2012 4,100


May 2012 5,200
June 2012 6,000
2. Purchases will be made as follows:
$
April 2012 2,050
May 2012 2,100
June 2012 3,500
Suppliers allow 2 months credit.
3. Rent of 5,400 per annum is payable monthly.
4. Pierre employs a part-time member of staff who is paid 300 per month.
5. Pierre plans to make drawings of 500 per month.
6. Other expenses will be paid as follows:
$
April 2012

150

May 2012

200

June 2012

350

7. Sales and purchases made in January to March were as follows:


Sales

Purchases

$
January 2012

3,600

1,700

February 2012

3,700

1,800

March 2012

3,800

1,900

REQUIRED:
a) Prepare Pierres cash budget for the 3 months ended 30 June 2012.
b) How much will Pierre owe for trade payables at 30 June 2012?

Multiple Choice Questions


1

Which of the following is not true about a cash budget?


a) A cash budget sets out all cash receipts and payments that a business expects to

make over a period of time.


b) Cash budgets are usually prepared on a month-to month basis.
c) Cash budgets show the expected bank balance at the end of the month.
d) Cash budgets include personal cash receipts and expenses.

Question 2
2
A cash budget for the six months ended 30 September 2013 shows an anticipated
overdraft of approximately 9,500. Which of the following would reduce the expected
overdraft?
a) Allowing customers two months' credit, instead of one month's credit, in which to
pay.
b) Suppliers' purchases being made for cash, instead of one month's credit.
c) Assets being leased, rather than purchased for cash, in 2013.
d) Charging depreciation on fixed assets at 25% on the straight-line basis, rather
than 20%.

Question 5
3
John has made the following predictions for his business for the first six months of
trading to 30 June 2012:
Sales in Jan, Feb and March= 20,000 per month

Sales in Apr, May and June= 35,000 per month


Sales will be on one month's credit
The total cash received from customers during the six months ended 30 June 2012, will be:
a) 165,000.
b) 145,000.
c) 185,000.
d) 130,000.

Question 4
John has made the following predictions for his business for the first six months of trading to
30 June 2012:
Sales in Jan, Feb and March = 20,000 per month
Sales in Apr, May and June = 35,000 per month
Sales will be on one month's credit.
The cash received in April will be, will be:
a) 40,000.
b) 20,000.
c) 35,000.
d) 55,000.

Question 5
John has made the following predictions for his business for the first six months of trading to
30 June 2012:
Sales in Jan, Feb and March = 20,000 per month
Sales in Apr, May and June = 35,000 per month
Sales will be on one month's credit
Purchases will be for cash.

If goods are sold at a gross profit margin of 40%, and goods are replaced as soon as they
are sold, the amount payable to suppliers in March 2012, will be:
a) 8,000.
b) 10,000.
c) 12,000.
d) 14,000.

Question 6
An extract from Eddie's Cash Budget is given below:

What is the expected bank overdraft at the end of July?


a) (3,000).
b) 3,000.
c) (1,000).
d) 1,000.

Question 9
8

An extract from Charlie's Cash Budget is given below:

9
Which of the following overdraft facilities would you advise Charlie to request for the
three months ended 30th November?
a) No overdraft facility is required.
b) An overdraft of a little over 5,000 is required.
c) An overdraft of a little over 8,000 is required.
d) An overdraft of a little over 20,000 is required.

Question 10
Which of the following statements are not true?
a) Cash sales are made when cash is received at the same time as the goods or
services are delivered.
b) Credit sales are made when the payment is received after the goods or services
have been delivered.
c) Cash purchases are those purchases for which cash payment will be made at the
same time as the goods or services are received.
d) Credit purchases are where the goods or services have not yet been received by
the business and payment has not yet been made.

11

The following information was taken from Sloan Ltds cash budget for
the month of July:

Beginning cash balance $90,000


Cash receipts

57,000

Cash disbursements

102,000

If the company has a policy of maintaining a minimum end of the month cash balance
of $75,000, the amount the company would have to borrow is
a. $30,000
b. $15,000
c.

$45,000

d. $18,000

12

A company's past experience indicates that 60% of its credit sales are
collected in the month of sale, 30% in the next month, and 5% in the
second month after the sale; the remainder is never collected.
Budgeted credit sales were:
January
February
March

$ 80,000
48,000
120,000

The cash inflow in the month of March is expected to be


a. $90,400
b. $68,400
c.

$72,000

d. $86,400

13

Which one of the following items would never appear on a cash


budget?
a. Office salaries expense
b. Interest expense

c.

Depreciation expense

d. Travel expense

14

The cash budget reflects


a. all revenues and all expenses for a period
b. expected cash receipts and cash disbursements from
all sources
c. all the items that appear on a budgeted income
statement
d. all the items that appear on a budgeted balance sheet

15

The financing section of a cash budget is needed if there is a cash


deficiency or if the ending cash balance is less than
a. the prior years
b. management's minimum required balance
c.

the amount needed to avoid a service charge at the bank

d. the industry average

16In the cash budget, total available cash less cash disbursements
a. equals ending cash balance
b. must equal total cash receipts
c.

is the excess of available cash over cash disbursements

d. equals the amount of financing

17Which of the following does not appear as a separate section on the cash
budget?

a. Cash receipts
b. Cash disbursements
c.

Capital expenditures

d. Financing