Florida Solution

Cash Budget Florida Plc

Receipts
Opening balance
Sales
Cash - 30%
Credit - 70%
Payments
Purchases
Cash
Credit
Wages
Rent
Sales commission
Heating and Lighting
Dividend - shares
Tax bill
Total Cash payments
Closing Bank balance

July

August

September

October

November

December

Marks

9,000

5,170

7,394

4,950

3,599

-4,767

5,940
10,500
25,440

7,590
16,800
29,560

8,280
13,680
29,534

7,590
17,710
30,250

7,590
19,320
30,510

9,360
17,710
22,303

3
3

5,880
8,190
5,000

4,851
6,825
5,000
4,500
990

6,199
10,920
5,000

6,762
9,009
5,000
4,500
1,380

6,199
11,512
5,000

6,199
12,558
5,000
4,500
1,265
1,200
3,000
------33,722

3
3
1
2
3
1
1
1
3

-11,419
Total

3
30

1,200

1,265
1,200

1,265

20,270

22,166

24,584

26,651

-------11,300
35,276

5,170

7,394

4,950

3,599

-4,767

WORKINGS
Sales
Sales
collection
Cash30%
Credit for 2
months70%
Purchases
70%
Purchases
payments
Cash - 35%
Credit 65%
Two
months

Apr
18000

May
15,000

June
24,000

July
19,800

August
25,300

September
27,600

October
25,300

November
25,300

December
31,200

5,400
-

4,500
-

7,590
16,80
0
24,390
13,860

7,590
17,710

7,590
19,320

9,360
17,710

4,500
12,600

5,940
10,50
0
16,440
16,800

8,280
13,860

5,400
0

7,200
12,600
19,800
10,500

22,140
17,710

25,300
19,320

26,910
17,710

27,070
17,710

0
0

4,410
0

3,675
0

5,880
8,190

4,851
6,825

6,199
10,920

6,762
9,009

6,199
11,512

6,199
12,558

4,410
15,000

3,675
24,000

14,070
19,800

11,676
25,300

17,119
27,600

15,771
25,300

17,711
25,300

18,757
31,200

900

750

1,200

990

1,265

1,380

1,265

1,265

Sales18,000
Monthly
Commission @ 5%
Paid one
0
month later

Dividends:
at 10p per share 30,000 shares 3,000
2. Explain why cash and profit are different concepts, and also explain how to treat
depreciation expenses in cash budget.
It can be said that cash relates to the money transactions entering and leaving the company.
Cash is something that can be physically touched, whereas, profit is a socially constructed
concept. The answer should be expanded by looking at some of the accounting concepts
that are used in creating profit, such as provision for bad debts, debtors, etc., and students
should be able to explain why this makes profit different from cash. Depreciation should not
be included in cash budgeting forecast, since it is not a cash expense; since this is Accounting concept that is used to devalue a fixed asset within the balance sheet.
(10 marks)
3) Critically discuss the relevance of a rolling budget and explain how a rolling budget could
be applied and explain its advantages and disadvantages.
A rolling budget is a budget or plan that is always available for a specific future period by
adding a month, quarter or year in the future as the month, quarter or year just ended is
dropped. The CIMA definition of a rolling budget is 'as the continuous updating of a shortterm budget by adding a further month or quarter and deducting the earliest month or
quarter so that the budget reflects current conditions'.
(2 marks)
Advantages of Rolling Budgets
The actual performance is likely to be compared with a more realistic target due to
constant review of the rolling budget.
A rolling budget is seen as a continuous process and managers are encouraged
constantly to look ahead and review future plans.
The workload of the budget staff is spread throughout the year rather than the whole
budget process being concentrated into a few months.
(4 marks)
Problems that may be encountered in Rolling Budget
With rolling budget, the work load is increased in comparison with preparing annual
budgets once per year.
Too much attention might be given to the continuous short-term aspects of budgets at
the expenses of long-term planning.
1) Because budgets are reviewed and changed at the end of each month quarter there
may be a danger when a new month, or quarter budget is added that staff will not
give enough attention towards the preparation of the year's budget because they
know it is likely to be changed in the revision process.
(4 marks)
Total for part 3 (10 marks)
Total 50 marks