ACCOUNTING
CASH BUDGETING
NOTES
AND
QUESTIONS
 CONTENTS

TOPIC PAGE

SECTION ONE INTRODUCTION TO CASH BUDGETING ...... 2 

Exercise 1.1 .................................................................................................................... 2 
What Is A Budget? .................................................................................................. 2 
Why Prepare A Cash Budget? ................................................................................ 3 
What Does A Cash Budget Look Like?................................................................... 3 

SECTION TWO A BUSINESS THAT ONLY HAS CASH

TRANSACTIONS................................................................... 4 
Example Of A Cash Budget .................................................................................... 4 
Exercise 2.1 .................................................................................................................... 6 

SECTION THREE A BUSINESS THAT HAS CREDIT SALES . 7 

Example Of A Statement Of Estimated Receipts From Accounts Receivable ........ 7 
Exercise 3.1 .................................................................................................................... 9 
Exercise 3.2 .................................................................................................................. 10 
Exercise 3.3 .................................................................................................................. 11 
Exercise 3.4 .................................................................................................................. 12 
Exercise 3.5 .................................................................................................................. 13 
Exercise 3.6 .................................................................................................................. 14 
Exercise 3.7 .................................................................................................................. 15 

SECTION FOUR FULL CASH BUDGET ............................. 16 

A Business That Has Cash & Credit Transactions................................................ 16 
Example 1 ..................................................................................................................... 16 
Example 2 ..................................................................................................................... 18 
Example 3 ..................................................................................................................... 21 
Exercise 4.1 .................................................................................................................. 24 
Exercise 4.2 .................................................................................................................. 26 
Exercise 4.3 .................................................................................................................. 29 
Exercise 4.4 .................................................................................................................. 32 
Exercise 4.5 .................................................................................................................. 35 

GOALS CHECKLIST - ARE YOU ABLE TO DO THE

FOLLOWING? ..................................................................... 38 

PAGE 1
SECTION ONE
INTRODUCTION TO CASH BUDGETING

EXERCISE 1.1

FILL IN THE MISSING WORDS FROM THE LIST BELOW:

Seasonal Depreciation Budgets

Variances Surplus Payments
Suppliers Planning and Control Receipts
Shortage Cash Actual

WHAT IS A BUDGET?

 For a business to be successful, _____________________ of all its activities

is necessary.

 To achieve this planning and control, all departments are involved in setting
up ________.

 A _________ is a plan of future actions, expressed in quantities/figures ie. A

financial plan for the future.

 Examples of budgets are: Sales budgets, cash budgets or a production

budget.

 The budgeting process starts with the sales budget. If the business does not
know how much it can sell, it won’t know how much to produce!

 A sales budget will estimate the quantity that will be sold (sales volume) and
the sales dollars that will be earned.

 A production budget will estimate the quantity that will be produced

(production volume) and the cost of production. These figures are based on
the budgeted sales volume. The cost of production will include raw materials,
direct labour and factory overhead.

 A ___________ budget is a plan of future cash receipts and cash payments.

PAGE 2
 WHY PREPARE A CASH BUDGET?

 To make sure that the business has enough money to pay __________
(accounts payable).

 To identify when the business has ___________ /excess/spare cash (this

cash could then be invested)

 To identify a _____________ of cash (need to arrange loans or make

changes in the business).

 To plan for _______________ changes (consider a ski resort).

 To use the budgeted figures as a control for _________ figures (identify

_____________ and determine why they exist).

WHAT DOES A CASH BUDGET LOOK LIKE?

 The cash budget has three parts: Receipts, _______________ , and the
effect on bank balance.

 If the business has credit sales a “Schedule of Estimated Receipts from

Accounts Receivable” is used to calculate the __________from accounts
receivable.

 Non-cash items must be excluded: eg _________________ , bad debts, loss

on sale of assets.

Click here to watch a video introducing you to Cash Budgeting

Have you checked out the activities on Language Perfect?

PAGE 3
SECTION TWO
A BUSINESS THAT ONLY HAS CASH
TRANSACTIONS

EXAMPLE OF A CASH BUDGET

From the following information of Cut & Dry Hairdressers, prepare a cash budget
for June and July 2020.

These are estimated figures, based on historical trends:

June July
Payments: $ $
Wages 500 500
Cash purchases 1,500 1,800
Rent 700 700
Electricity 200 220
Advertising 150 -

Receipts:
Fees for services 3,200 2,600
Interest on deposit - 250

The bank balance on the 1st of June 2020 is $1,200 DR.

PAGE 4
 SOLUTION:

CUT & DRY HAIRDRESSERS

Cash Budget for June and July 2020
June July
Estimated receipts: $ $
Cash from hairdressing 3,200 2,600
(1) Interest on deposit - 250
Total estimated receipts 3,200 2,850
Estimated payments:
Wages 500 500
Cash purchases 1,500 1,800
Rent 700 700
(2) Electricity 200 220
Advertising 150 -
Total estimated payments 3,050 3,220
Bank balance (start of month) DR/CR 1,200 DR. 1,350 DR.
Excess receipts over payments 150 -
Excess payments over receipts - 370
Bank balance (end of month) Dr/Cr 1,350 DR. 980 DR.

+1200+150=+1350
The bottom portion may also appear as follows:

Net cash flow or Net cash increase/decrease 150 (370)

Add opening cash balance (ie. Bank) 1,200 DR. 1,350 DR.
Equals closing cash balance 1,350 DR. 980 DR.

PAGE 5
EXERCISE 2.1

The following information was taken from the business of A.N.Eagle. Prepare a cash
budget for January to March 2020. The Bank balance on the 1st January 2020 had a
credit balance of $4000 (i.e. overdraft).

JANUARY FEBRUARY MARCH

Cash Sales 170 000 130 000 165 000
Cash Purchases 120 000 130 000 120 000
Depreciation 1 000 1 000 1 000
Rent Received 4 000 4 000 4 000
Other operating expenses 30 000 25 000 10 000
Building extensions 30 000

Required:
Prepare a Cash Budget for January, February and March 2020.

A.N.EAGLE
Cash budget for January – March 2020
January February March
$ $ $
Estimated receipts:

Total estimated receipts

Estimated payments:

Total estimated payments

Bank balance (start of month)
Excess receipts over payments
Excess payments over receipts
Bank balance (end of month)

PAGE 6
SECTION THREE
A BUSINESS THAT HAS CREDIT SALES

When a business sells goods on credit it is necessary to prepare a statement of

estimated receipts from accounts receivable as the debtors will pay their debts off
over a period of time, and the business needs to know when the cash is likely to be
received so that it can prepare the cash budget.

EXAMPLE OF A STATEMENT OF ESTIMATED

RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit sales for KIWI TRADERS for the first six months of 2020 have been budgeted
as follows:

January $60,000
February $70000
March $84,000
April $72,000
May $64,000
June $50,000

Past experience has shown that the debtors/ accounts receivable pay their debt as
follows:

60% in the month after the sales transaction

30% in the second month
8 % in the third month
2% will be written off as bad debt, at the end of the third month.

The accounts receivable had a balance on the 1 January 2020 of $95 600, in respect
of sales in October ($56 000), November ($60 000) and December ($66 000)

Required:
Prepare A STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS
RECEIVABLE for the period 1st January 2020 to 30th June 2020.

PAGE 7
SOLUTION:

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

CREDIT JAN. FEB. MARCH APRIL MAY JUNE
SALES
OCTOBER 56 000 4 480

NOVEMBER 60 000 18 000 4 800

DECEMBER 66 000 39 600 19 800 5 280

JANUARY 60 000 36 000 18 000 4 800

FEBRUARY 70 000 42 000 21 000 5 600

MARCH 84 000 50 400 25 200 6 720

APRIL 72 000 43 200 21 600

MAY 64 000 38 400

JUNE 50 000
TOTAL 62 080 60 600 65 280 76 200 74 000 66 720

Click here to watch a video explaining how to complete a Schedule

of Receipts from Accounts Receivable

Have you checked out the activities on Language Perfect?

PAGE 8
EXERCISE 3.1

Complete the estimated receipts from Accounts Receivable using the information
below.

Actual Sales:
February 30 000
March 40 000

Estimated Sales:
April 20 000
May 30 000

Shaw Sand Supplies Ltd, on the basis of past experience, has found that 80% of
accounts receivable paid their accounts in the month following sale, and 20% in the
second month following sale.

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales April May
February
March
April
May

PAGE 9
EXERCISE 3.2

From the following information about the business of Y Arthur, prepare a statement
of estimated receipts from accounts receivable for the months of September,
October and November 2020.

Credit Sales
July 60 000
August 40 000
September 75 000
October 70 000
November 60 000

60% of accounts receivable were received in the month following sale and the other
40% were collected in the next month.

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales September October November
July
August
September
October
November

PAGE 10
EXERCISE 3.3

W James, on the basis of past experience, has found that 70% of accounts
receivable pay their accounts in the month following sale, 20% in the second month
following sale, and 10% in the third month after sale. Prepare a statement of
estimated receipts from Accounts Receivable for the months October to December.

Credit Sales
July 30 000
August 45 000
September 20 000
October 60 000
November 65 000
December 80 000

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales October November December
July
August
September
October
November

PAGE 11
EXERCISE 3.4

A Harper estimates credit sales for the next three months – March to May – as
follows:

Credit Sales
March 15 000
April 18 000
May 16 000

Credit sales for December $25 000; $20 000 for January; and $22 000 for February.

Accounts Receivable usually settle their accounts as follows:

60% in the month following sale. These are entitled to a 3 per cent discount.
30% in the second month following sale.
10% in the third month following sale.

Required: Prepare a statement of estimated receipts from accounts receivable for

the three months ending May.

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales

PAGE 12
EXERCISE 3.5

Ali Baba’s Delights, on the basis of past experience, has found that 70% of accounts
receivable pay their accounts in the month of the sale, 20% pay in the month after
sale, and 5% pay in the second month after the sale. The remaining 5% of credit
sales are bad debts and are written off at the end of the second month after sale.
Prepare a statement of estimated receipts from Accounts Receivable for the months
April to June.

Actual Sales:
March 18 000
Estimated Sales:
April 12 000
May 6 000
June 9 000

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales April May June
March
April
May
June

Bad Debts

PAGE 13
EXERCISE 3.6

The accountant of STILT Traders wants to establish how much cash the business
can expect to receive in March, April and May 2020. He provides the following
information:

Credit sales:
Month: Actual: Budgeted:
$ $
January 160 000
February 170 000
March 180 000
April 190 000
May 160 000

Accounts Receivable are usually collected as follows: 50% in the month of the
transaction, 30% in the next month and 18% in the second month after the
transactions. The rest is usually irrecoverable and written off as bad debt at the end
of the second month after the transactions.

Required: Prepare a collections schedule for accounts receivable for the budgeted
period March to May 2020.

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales March April May
January
February
March
April
May

Bad Debts

PAGE 14
EXERCISE 3.7

The given information relates to Kingfisher Traders. Their accounting period ends on
the 30 June each year. Calculate the statement of estimated receipts from accounts
receivable from July to September 2020.

Information:

 Credit Sales:
Actual $ Budgeted $
April 2020 40 000
May 2020 48 000
June 2020 64 000
July 2020 56 000
August 2020 72 000
September 2020 96 000

 Normally credit sales are collected as follows:

10% in the month after the transaction, 50% in the second month after the
transaction, 38% in the third month after the transaction and the remaining 2% is
written off as bad debt at the end of the third month.

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE

Credit Sales July August September
April
May
June
July
August
September

Bad Debts

PAGE 15
SECTION FOUR FULL CASH BUDGET

A BUSINESS THAT HAS CASH & CREDIT

TRANSACTIONS

EXAMPLE 1

1 In the months of August and September 2023 Donald and Daisy had sales
revenue of $37,500 and $43,000 respectively. The sales forecast for the last
quarter of 2023 is as follows:

October $40,000
November $47,000
December $50,000

Cash sales normally account for 45% of total sales. To encourage prompt
payment the company offers a 7% cash discount on credit sales paid in the
month of sale. The normal collection experience is:

50% collected in the month of sale

40% collected in the month following sale
8% collected in the second month following sale
2% uncollectible in the second month following sale

At the end of September 2023 the accounts receivable balance was $13
887.50.

Prepare a Schedule of Cash from Accounts Receivable for the months of

October, November and December 2023 for Donald and Daisy.

DONALD AND DAISY

STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE THREE MONTHS ENDED DECEMBER 2023
Credit Sales October November December
August 20,625 1,650
September 23,650 9,460 1,892
October 22,000 10,230 8,800 1,760
November 25,850 12,020 10,340
December 27,500 12,788
21,340 22,712 24,888

Bad Debts 412.50 473 440

PAGE 16
2 Donald and Daisy Sportswear are investigating the purchasing of new
premises. If they were to apply for a loan the bank would request the owners
to prepare a cash forecast for the three months October – December 2023.

Donald and Daisy have supplied the following information.

 All purchases are paid on the 20th of the month following purchase.
 Actual purchases in August and September were $18 000 and $27 000
respectively.
 Expected purchases in October, November and December are $27 000,
$36 000 and $38 000.
 All expenses are paid in cash in the month in which they are incurred.
 Expected cash expenses in August are $4 000, September $4 200,
October $4 500, November $4 700 and December $5 000.
 Donald and Daisy had a bank balance of $18 000 on 1 October 2023.
 Interest on any overdraft balance that exists at the end of each month will
be charged at the rate of 20% and paid in the next month.
 Donald and Daisy take cash drawings of $1500 each per month.
 Donald and Daisy have a $200 000 loan at 8% p.a. interest paid monthly.
A principal payment of $20 000 is paid every two months. The first
payment was made in January 2023.

Prepare a cash budget for the three months ended December 2023.

DONALD AND DAISY

CASH BUDGET
FOR THE THREE MONTHS ENDING 31 DECEMBER 2023
October November December
Receipts
Cash from customers (Copy) 21 340 22 712 24 888
Cash Sales 45*Total Sales 18 000 21 150 22 500
Total Receipts 39 340 43 862 47 388

Payments
Payments to suppliers /AP(credit por) 27 000 27 000 36 000
Expenses paid 4 500 4 700 5 000
Drawings withdrew 3 000 3 000 3 000
Loan repayment 20 000
Interest on loan 667 533 533
Total Payments 35 167 55 233 44 533

Net Cash Flow (R-P) 4 173 (11 371) 2 854

Add Opening Cash Balance 18 000Dr. 22 173Dr. 10 802Dr.
Equals Closing Cash Balance Dr/Cr 22 173Dr. 10 802Dr. 13 657Dr.
Click here to watch a video demonstrating this example
PAGE 17
 EXAMPLE 2

You have just graduated with an Accounting and Management degree and take a job
with Bangers & Mash Ltd.

1. Your task is to prepare a Schedule of Cash from Accounts Receivable and a

Cash Budget for two months ending 31 January 2023. You are supplied with
the following information:

Bangers & Mash Ltd

Statement of Financial Position (Balance Sheet)
as at 30 November 2022
Current Assets Current Liabilities
Accounts Receivable 431,000 Accounts Payable 112,000
Inventory 82,000 513,000 Bank Overdraft 50,000 162,000
Non-Current Assets Non-Current
Liabilities
Equipment 255,000 Mortgage 400,000
Land & Buildings 480,000 735,000 Equity
Contributed Equity 500,000
Retained Earnings 186,000 686,000
1,248,000 1,248, 000

Budgeted Income Statement

for the two months ending 31 January 2023
December January
$ $
Sales (all credit) 240 000 140 000
Less Cost of Sales (purchases) 96 000 56 000
Gross Profit 144 000 84 000
Less Expenses
Wages and Salaries 26 000 22 000
Depreciation 4 600 5 100
Other Expenses (including Bad Debts) 57 400 32 900
Total Expenses 88 000 60 000
Profit for the year 56 000 24 000

Additional information:
 All sales are on credit:
o 50% of debtors pay in the month following the sale
o 30% of debtors pay in the second month following the sale
o 15% of debtors pay in the third month following the sale
o 5% of debtors are written off as bad debts at the end of the third month
following the sale.

 Goods for resale are purchased in the month of sale and are paid for on the
20th of the following month less a 10% discount.

PAGE 18
  New equipment worth $80 000 purchased in January will be paid for by four
equals monthly installments beginning 20 January 2023. It is planned to sell
the old equipment for $10 000 cash in December 2022.
 A loan repayment of $10 000 will be required in January 2023.
 A dividend to the owners of $50 000 will be paid in December 2022.
 The following data is available from the past records:

September 2022 October 2022 November 2022

Actual Sales $180 000 $230 000 $280 000

 Other Expenses, excluding Bad Debts, are paid in the month that they are
incurred.

1.
BANGERS AND MASH LTD
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE TWO MONTHS ENDED JANUARY 2023
Credit Sales December January
September 180,000 27,000
October 230,000 69,000 34,500
November 280,000 140,000 84,000
December 240,000 120,000
236,000 238,500

Bad Debts 9,000 11,500

PAGE 19
 BANGERS & MASH LTD
CASH BUDGET
FOR THE TWO MONTHS ENDING 31 JANUARY 2023
December January
Receipts
Cash from customers 236 000 238 500
Sale of (old) equipment 10 000
Total Receipts 246 000 238 500

Payments
Payments to suppliers 100 800 86 400
Wages and Salaries 26 000 22 000
Other Expenses 48 400 21 400
Equipment 20 000
Loan 10 000
Dividend to owners 50 000
Total Payments 225 200 159 800
Net Cash Flow 20 800 78 700
Add Opening Cash Balance 50 000 Cr 29 200 Cr
Equals Closing Cash Balance 29 200 Cr 49 500 Dr

2. Based on the results of the Cash Budget you prepared for 1, make ONE
recommendation to the manager of Bangers & Mash Ltd that will improve the way
in which they manage the firm’s cash resources.

 PLAN TO INVEST SURPLUS CASH IN JANUARY

 AVOID PAYING DIVIDENDS UNTIL JANUARY

PAGE 20
EXAMPLE 3

Kozzie Ltd manufactures warm clothing for skiers and the following data has been
assembled by the Financial Manager to prepare a cash budget. The company has
been having liquidity problems recently.

SALES:
 25% of total sales are for cash.
 75% of Accounts Receivable is collected in the month after sale, 20% two
months after the sale and the remaining 5% is written off as bad debt at the
end of the second month.
 Actual total sales in November and December are $186,666.67 and
$166,666.67 respectively.
 Total sales for the first quarter of 2020 are expected to be as follows:
o January $300,000
o February $360,000
o March $360,000

OTHER RECEIPTS:
 An old vehicle will be sold in January for $10,000
 A loan of $200,000 to purchase a new machine will be received on the 1
February 2020. The loan is interest only (6% per annum). Interest is payable
monthly on the first of each month, beginning in March.

PURCHASES:
Purchases of raw materials are equal to 40% of sales for the month. These
purchases are paid for in the same month the sales are made.

WAGES:
Total weekly wages are $10,000 (per week)
January and February will have four pay days and March will have five.

OTHER EXPENSES:
Other expenses are estimated to be $50,000 in January, $70,000 in February and
$60,000 in March. The figures include bad debts written off and a monthly charge for
depreciation of $6,000 (which will double with the acquisition of the new machine).
These figures do not include interest on the loan, which must be shown separately.

OTHER CASH PAYMENTS:

 An interim dividend of $40,000 is scheduled to be paid to shareholders in
January 2020.
 The new machine will cost $200,000 and be paid for on 1st February 2020.

BANK:
The bank balance on 31st December 2019 is $18,000 (CR.).

PAGE 21
Required:

a) Prepare a cash budget for the first quarter of 2020.

b) If Kozzie Ltd has a liquidity problem, which of their payments should it consider
delaying? Give a reason.

a)
KOZZIE LTD
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE THREE MONTHS ENDED MARCH 2020
Credit Sales January February March
November 140,000 28,000
December 125,000 93,750 25,000
January 225,000 168,750 45,000
February 270,000 202,500
March 270,000
121,750 193,750 247,500

Bad Debts 7,000 6,250 11,250

25

PAGE 22
 KOZZIE LTD.
CASH BUDGET
FOR THE FIRST QUARTER ENDING 31 MARCH 2020
JANUARY FEBRUARY MARCH
RECEIPTS:

Accounts receivable 121 750 193 750 247 500

Cash sales 75 000 90 000 90 000
Sale of Vehicle 10 000
Loan 200 000

Total estimated receipts 206 750 483 750 337 500

PAYMENTS:

Raw material/ Accounts payable 120 000 144 000 144 000
Wages 40 000 40 000 50 000
Other expenses (*1) 37 000 (*2) 51 750 (*3) 36 750
Interest (*4) 1 000
Interim dividend 40 000
Machine 200 000

Total estimated payments 237 000 435 750 231 750

NET CASH FLOW (30 250) 48 000 105 750
Add opening bank balance 18 000 Cr. 48 250 Cr. 250 Cr.
Equals closing bank balance 48 250 Cr. 250 Cr. 105 500 Dr.

*1= 50 000 – 6000 depreciation – 7000 bad debts

*2= 70 000 – 12000 depreciation – 6250 bad debts
*3= 60 000 – 12000 depreciation – 11 250 bad debts
*4= 200 000*6%/12

b) Dividends paid in January could be delayed until the cash position

improves.

Click here to watch a video demonstrating the last two examples

Have you checked out the activities on Language Perfect?

PAGE 23
EXERCISE 4.1

From the books of C. Gull, prepare a cash budget for the months of September,
October and November 2020.

 Estimated figures:
SEPTEMBER OCTOBER NOVEMBER
$ $ $
Cash sales 90 000 115 000 110 000
Credit sales 100 000 110 000 90 000
Cash purchases 50 000 45 000 55 000
Credit purchases 75 000 80 000 90 000
Rent received 1 000 1 000 1 000
Salaries 6 800 6 800 7 500
Other operating expenses 10 000 10 000 11 000
Building 150 000

 Accounts receivable settle their accounts as follows:

90% in the month of the transaction (they are entitled to 3% discount)
8% in the month after the transaction
2% are considered to be bad debt at the end of the second month after the
transaction.
 Accounts payable are paid in the month after the purchase and receive a 5 %
discount.
 Actual credit sales in July were $75 000 and in August were $80 000
 Actual credit purchases in August were $50 000
 The operating expenses include an amount of $400 per month for
depreciation.
 The bank balance on the 31 August 2020 was $5000 debit.

C GULL
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE THREE MONTHS ENDED NOVEMBER 2020
Credit Sales September October November
July
August
September
October
November

Bad Debts

PAGE 24
 C.GULL.
CASH BUDGET for September to November 2020
SEPTEMBER OCTOBER NOVEMBER
RECEIPTS:

Total estimated receipts

PAYMENTS:

Total estimated payments

NET CASH FLOW
Add opening bank balance
Equals closing bank balance

Question:
Even though a big payment (building) was made in November, the business still has
a large amount of cash in the Bank. What suggestion could you make to C.GULL so
that this cash is used more effectively?

PAGE 25
EXERCISE 4.2

The information given concerns Hawk Traders. You are required to complete a cash
budget for the period March, April and May 2020.

Information:
 Cash in the bank on 1st March 2020 was $12 000Dr.
 Expected Sales: 60% of sales are normally on credit
March 2020 $40 000
April 2020 $50 000
May 2020 $55 000

 Accounts receivable are paid as follows:

o 50% in the same month as the transaction, 30% in the next month,
18% in the second month after the transaction and 2% is written off as
bad debt at the same time.

 Cash purchases:
March 2020 - $10 000
April 2020 - $13 000
May 2020 - $14 500

 Credit purchases:
March 2020 - $10 000
April 2020 - $12 000
May 2020 - $13 000
Accounts payable are paid in the month after purchases are made

 The owner withdraws $3 500 cash every month

 A new vehicle will be purchased in April and paid for in cash, $40 000.
 The interest rate on a fixed deposit of $10 000 (deposited in May 2018) is
15% per annum. Interest is receivable monthly.
 The interest rate on the mortgage ($80 000 received June 2016) is 18% per
annum and paid quarterly at the end of March, June, September and
December 2020. One quarter of the mortgage will be repaid in April 2020.
 The average monthly operating expenses of the previous year amounted to
$5000. The operating expenses will be increased by 20% for 2020 and paid
monthly. These amounts include monthly depreciation of $500 and any bad
debt calculated.

Required:
The business has made two large payments in April. This has affected their cash
flow.
a) Suggest an alternative for these two payments.
b) What arrangement would HAWK Traders have to make if they continue
with these transactions?

PAGE 26
Solutions:

Question a)

Question b)

HAWK TRADERS
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE THREE MONTHS ENDED MAY 2020
Credit Sales March April May
March
April
May

Bad Debts

PAGE 27
 HAWK TRADERS
CASH BUDGET FOR MARCH TO MAY 2020
MARCH APRIL MAY
RECEIPTS:

Total estimated receipts

PAYMENTS:

Total estimated payments

Bank balance (start of month)
Excess receipts over payments
Excess payments over receipts
Bank balance (end of month)

PAGE 28
EXERCISE 4.3

Data assembled by Egret Manufacturers for preparing a Cash budget for December
2019 to February 2020.

SALES
 30% of sales are for cash.
 75% of Accounts Receivable are collected in the month after the sale, 20%
two months after the sale and the remaining 5% is written off as bad debt to
financial expenses at the end of the second month after sale.
 Actual sales for October are $148,571 and for November are $120,000.
 Sales are estimated to be $190 000 for December, $250 000 for January and
$250 000 for February.

OTHER INCOME
 The old machine will be sold for scrap in December for $5 000.
 The loan of $100,000 for a new machine will commence on the 1st December
2019.

PURCHASES
 Purchases of raw materials are equal to 35% of sales for the month. These
purchases are paid for in the same month the sales are made.

WAGES
 Weekly wages, including direct labour, are $9 000 per week.
 December and February will have four pay days and January will have five
pay days.

OTHER EXPENSES
 Other expenses are estimated to be $43 600 in December, $68 000 in
January and $41 000 in February.
 These figures include the bad debts written off and a monthly charge for
depreciation of $5 000.

OTHER CASH PAYMENTS

 An interim cash dividend of $25 000 is scheduled to be paid to the owners in
January.
 The new machine will cost $150 000 and be paid for on 1 December 2019.

BANK
 The bank balance at 1 December 2019 is estimated to be $5 000 in funds.

PAGE 29
Answer the following questions:

a) Which payments could be delayed if the business were having liquidity

problems? Give a reason.
b) What consequences would the decision to purchase the new machine
have on the creditors and the customers?

Solutions:

a)

b)
CREDITORS:

CUSTOMERS:

EGRET MANUFACTURERS
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE THREE MONTHS ENDED FEBRUARY 2020
Credit Sales December January February
October
November
December
January

Bad Debts

PAGE 30
 EGRET MANUFACTURES
CASH BUDGET FOR DECEMBER 2019 TO FEBRUARY 2020
DECEMBER JANUARY FEBRUARY
RECEIPTS:

Total estimated receipts

PAYMENTS:

Total estimated payments

NET CASH FLOW
Add opening bank balance
Equals closing Bank balance

PAGE 31
EXERCISE 4.4

From the following information, prepare a cash budget for the four months from
September to December 20X0 for North Coast Sales.

 Accounts Receivable, from experience, have paid their debts as follows:

 50% in the first month after sale (these are entitled to a 2% discount)
 30% in the second month after sale
 15% in the third month after sale
 5% are considered to be bad debts and are written off at the end of the fourth
month after sale.

 Credit Sales from previous months were:

(a) June $20 000
(b) July $15 000
(c) August $17 000

 The following estimates have been made for the budget period:

Month Cash Credit Credit Wages Other

Sales Sales Purchases Expenses
September 15 000 22 000 14 000 1 500 9 000
October 14 500 16 000 10 000 1 200 7 000
November 14 000 12 000 11 000 2 000 15 000
December 15 000 18 000 4 500 1 800 12 000

 Credit purchases are paid in the month after purchase. A 3% discount is

received if this is done.
 Accounts Payable at the end of August were $6 000.
 Expenses are paid in the month they are incurred.
 The estimate for the other expenses includes depreciation of $1 600 per month,
and any bad debts written off.
 The business plans to install a new refrigeration unit in November at a cost of
$112 000. In November $75 000 is to be paid, and the balance is to be paid in
December. No discount is applicable.
 Interest received on investments amounted to $10 000 and this will be received in
September.
 Bank balance on 31 August is $8 400 DR.

PAGE 32
 NORTH COAST SALES
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE FOUR MONTHS ENDED DECEMBER 20X0
Credit September October November December
Sales

Bad Debts

PAGE 33
 NORTH COAST SALES
CASH BUDGET FOR SEPTEMBER TO DECEMBER
SEPTEMBER OCTOBER NOVEMBER DECEMBER
RECEIPTS:

Total estimated receipts

PAYMENTS:

Total estimated payments

NET CASH FLOW
Add opening bank
balance
Equals closing bank
balance

PAGE 34
EXERCISE 4.5

On the basis of the following information relating to the business of P Adamson,

prepare a cash budget for the six months ended 31 December 2021.

 Credit Sales for the six months to June were:

(a) January 24 500
(b) February 27 000
(c) March 24 000
(d) April 25 500
(e) May 26 000
(f) June 24 500

 Experience has shown that accounts receivable usually pay as follows:

 20% in the month after sale
 50% in the second month after sale
 20% in the third month after sale
 8% in the fourth month after sale
 2% are considered to be bad debts and are written off at the end of the fourth
month after sale.

 The following estimates have been made for the budget period:

Month Cash Credit Cash Credit Other

Sales Sales Purchases Purchases Expenses
July 21 000 24 000 21 400 21 200 22 900
August 21 500 26 000 21 600 22 000 23 400
September 21 000 25 000 21 800 21 600 23 100
October 21 500 27 000 22 000 21 900 23 500
November 21 800 28 000 22 500 21 400 23 700
December 22 000 29 000 23 000 21 800 23 800

 The estimate for the other expenses includes depreciation of $600 per month,
and any bad debts written off.
 All expenses are paid in the month in which they occur.
 At the end of June, the amount due to accounts payable was $21 200. Payments
are made in the month following the purchases.
 Cash at bank was $21 300 DR.
 It is planned to purchase for cash an additional cash register costing $1 000 in
August, and to trade in a motor vehicle in October. The cost of the new vehicle is
$12 500 on which $6 000 trade-in will be allowed. The balance will be paid in
October.

PAGE 35
Solutions:

P ADAMSON
STATEMENT OF ESTIMATED RECEIPTS FROM ACCOUNTS RECEIVABLE
FOR THE SIX MONTHS ENDED DECEMBER 2021
Credit Sales July August September October November December

Bad Debts

PAGE 36
 P ADAMSON
CASH BUDGET FOR JULY TO DECEMBER
JULY AUG SEPT OCT NOV DEC
RECEIPTS:

Total estimated receipts

PAYMENTS:

Total estimated payments

NET CASH FLOW
Add opening bank balance
Equals closing bank
balance

PAGE 37
GOALS CHECKLIST - ARE YOU ABLE TO DO
THE FOLLOWING?

1 Explain the reasons for preparing a budget (sales budget, cash

budget, production budget)
2 Prepare a Statement of Estimated Receipts from Accounts
Receivable.
3 Prepare a full Cash Budget.

PAGE 38