Running Head: Built-Tight Master Budget 1

Running head: BUILT-TIGHT MASTER BUDGET 1
Built-Tight Master Budget
Parmeet Singh
Westcliff University
BUS 535
Managerial Accounting
Professor: Dr. Kaveh Shamsa
August 8th, 2020
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BUILT-TIGHT MASTER BUDGET 2
Introduction
Cash Budget plays a major role in proper management of the resources. With the help of
a cash budget, we can forecast the future requirements of the companies. A financial manager
can use the cash budget and forecast the requirement of the cash in the future (Cite ~ Lerner,
(1968). It helps the managers to acquire various financial approaches and check the information.
According to Hauser, (1991), if the management of any business wants to start a new
project then they have to consider all the expenses in the future so that they can have
management of cash flow in the future. There are two internal main parts of the cash budgeting
are receipt of cash and disbursement. It is mainly maintained in three types, that is every month,
every three months, or yearly basis. The Cash Budget also helps the company in evaluating the
performance.
In a small and medium based organization, budgets are considered very important
because they give us future information and how the company will grow, which helps in
monitoring the performance of the company. (Cite ~ Maduekwe & Kamala (2016)).
Let us see the example which is provided in the assignment for calculating the cash
budgets for which we have been provided the following details:
A B C D
1 July August September
2 Budgeted Sales 64,000 80,000 48,000
3 Budgeted cash Payments for
4 Direct materials 16,160 13,440 17,760
5 Direct labor 4,040 3,360 3,440
6 Factory Overhead 20,200 16,800 17,200
We have been provided the following figures in the assignment:
● The minimum Cash Balance of $15,000 is required.
● If cash balance exceeds this amount, excess is used to pay liabilities.
● If cash balance falls below this amount, funds are obtained by borrowing to raise the cash
to the minimum required level.
● Monthly interest rate on loan is 1%.
● All the Operating Expenses are paid in cash and contain the following items: These
expenses are fixed for every month.
Sales commission 10%.
Office salaries $4,000 per month
Rent $6,500 per month
With the details provided above we are going to prepare master cash budget for the
company called Built-Tight with following data:
July August September

Begin Cash $ 15,000 $ 15,000 $ 20,960
Accounts receivable $ 45,000 $ 51,200 $ 64,000
Accounts payable $ 4,500 $- $-
short-term loan balance $ 5,000 $ 9,050 $-
cash flow from operating activities
cash sales $ 12,800 $ 16,000 $ 9,600
payments for previous month sales $ 45,000 $ 51,200 $ 64,000
Accounts Payable Payoff $ (4,500) $- $-
Direct Materials $ (16,160) $ (13,440) $ (13,760)
Direct Labor $ (4,040) $ (3,360) $ (3,440)
factory overhead $ (20,200) $ (16,800) $ (17,200)
Sales Commission $ (6,400) $ (8,000) $ 4,800
office salary $ (4,000) $ (4,000) $ (4,000)
rent $ (6,500) $ (6,500) $ (6,500)
interest on loan $ (50) $ (91) $-
cash flow from operating activities $ (4,050) $ 15,010 $ 33,500
cash balance before financing activity $ 10,950 $ 30,010 $ 54,460

cash flow from financing activity $ 4,050 $ (9,050) $-
End cash $ 15,000 $ 20,960 $ 54,460
As per the data given in the assignment, the sales of the company is divided in two parts,
that is 80% is credit and 20 % is in cash. So, for each month, we have calculated two categories
of cash receipts. We have been provided with a closing cash sale of June which is $15,000, which
is taken as the opening balance of July month.
For the month of July, we have taken the closing balance of June cash sale which is
$15,000, and will be opening the balance of July. As we have been provided Accounts receivable
$45,000, Accounts payable 4,500, short-term loan balance 5,000 are given. After deducting all
over expenses we have cash flow from operating activities $ (4,050), which is negative. As we
have started with $15,000 and now we have left cash balance before financing activity $10,950,
it is below the minimum balance which we have to keep at the end of month. We have taken loan
of $ 4,050 to maintain a $15,000 balance.
Now in the month of August, after deducting all over payment, we have cash balance before
financing activity $ 30,010 we can pay all our loan of $ 9,050 all. After paying all our loans we
have left the End Cash of $ 20,960. It is more than the minimum opening balance amount.
Similarly, in the month of September, we have End cash of $ 54,460 left after deducting all our
expenses.
Thus to grow and control the business expenses, Cash Budget gives greater insight and
provides the power to make decisions for a better future. In the small business operations, cash
budgets provides adjustment of risk to the management (Cite ~ Worley, & Beheshti (1992))
References
Hauser, R. C., Edwards, D. E., & Edwards, J. T. (1991). Cash budgeting: An underutilized
resource management tool in not-for-profit health care entities.Hospital & Health Services
Administration, 36(3), 439. Retrieved from https://search.proquest.com/docview/206717529?
accountid=158986
John, J. Wild & Ken, W. Shaw. (2019). Financial and Managerial Accounting: Information for
Decisions, Eighth Edition. New York: McGrew-Hill Education.
Lerner, E. M. (1968). Simulating a cash budget. California Management Review (Pre-1986),
11(000002), 79. Retrieved from https://search.proquest.com/docview/206317326?
accountid=158986
Maduekwe, C. C., & Kamala, P. (2016). The use of budgets by small and medium enterprises in
cape metropolis, south africa. Problems and Perspectives in Management, 14(1), 183-191.
doi:http://dx.doi.org/10.21511/ppm.14(1-1).2016.06
Worley, J. K., & Beheshti, H. M. (1992). Improving cash management in the small firm: A risk
adjusted approach. Journal of Business and Entrepreneurship, 4(3), 13-0_6. Retrieved from
https://search.proquest.com/docview/214233158?accountid=158986
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Running head: BUILT-TIGHT MASTER BUDGET 1

Built-Tight Master Budget

Professor: Dr. Kaveh Shamsa

August 8th, 2020

budgets for which we have been provided the following details:

We have been provided the following figures in the assignment:

● The minimum Cash Balance of $15,000 is required.

● If cash balance exceeds this amount, excess is used to pay liabilities.

to the minimum required level.

● Monthly interest rate on loan is 1%.

expenses are fixed for every month.

Sales commission 10%.

Office salaries $4,000 per month

Rent $6,500 per month

company called Built-Tight with following data:

July August September

cash balance before financing activity $ 10,950 $ 30,010 $ 54,460

is taken as the opening balance of July month.

of $ 4,050 to maintain a $15,000 balance.

Administration, 36(3), 439. Retrieved from https://search.proquest.com/docview/206717529?

Decisions, Eighth Edition. New York: McGrew-Hill Education.

Lerner, E. M. (1968). Simulating a cash budget. California Management Review (Pre-1986),

11(000002), 79. Retrieved from https://search.proquest.com/docview/206317326?

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