Directorate: Curriculum FET

Grade 11 ACCOUNTING Term 3: Week 5

TOPIC: Budgeting (Introduction & Debtors collection)

In Gr 10 and 11 you learnt about ...
basic budgeting concepts | cash budget | zero based budget | capital budget | long-term budget |
medium-term budget | budget period | cash surplus | cash shortfall
This lesson will enable you to know the ...
• purpose of budgeting
• main features of the cash budget
• difference between a cash budget and projected income statement
• difference between cash items and non-cash items
• calculations necessary for the debtors collection schedule, credit sales & total sales

Use your Textbook to read about: Via Afrika Gr 11 Study Guide

Budgeting: https://wcedeportal.co.za/eresource/116616
• purpose of budgeting
• preparing a cash budget
• preparing debtors collection schedule Lucem Publishers Gr 11 Teachers Guide
(textbook & answer book in one)
https://wcedeportal.co.za/eresource/116641
You may also refer to these digital (Pg. 234 - 263)
resources listed here.
Study & Master Gr 11 PPT (Ch 11)
https://wcedeportal.co.za/eresource/133321
PPT presentation on Budgeting

Introduction

• A successful business not only keep record of past transactions,

but it also PROJECTS its business results into the FUTURE.
Making estimates of future results is called FORECASTING.
• Forecasting the expected income and cash flows / needs for the foreseeable future is important for effective
business MANAGEMENT.
• It allows managers to set financial goals and take corrective action (in time) should the actual results differ
from the forecasted goals.
• Forecasting is based on reliable past financial records, e.g. financial statements and bank statements
• A business that manages their cash funds effectively will remain LIQUID (abilitiy to meet short term cash
obligations, e.g. pay creditors and employeers, etc.)
• The most important internal financial management and control 'tools' for cash are the CASH BUDGET
and the PROJECTED INCOME STATEMENT (Statement of Comprehensive Income).

Gr 11 Accounting Term 3, 2020 1

PURPOSE OF BUDGETING
Cash Budgets:
• ensure that the business stays within their financial limits (stays liquid)
• help to identify cash flow risks
• help to find extra funding in time, IF necessary
Projected Income Statements:
• assist a business to make good business decisions and see how it will influence projected PROFIT/LOSS
(projected future income less projected future expenses)

Basic DIFFERENCE between a Cash Budget and a Projected Income Statement

CASH BUDGET PROJECTED INCOME STATEMENT
• It is a forecast of the cash position (bank balance) • Is used to predict the amount of profit/loss that a
of a business over a future period business will generate over a certain period
• It sets out the expected cash receipts and cash • Sets out the expected income to be generated
payments over the budgeted period. and expenses to be incurred over the budgeted
period.

Debtors Collection Schedule

• The Debtors Collection Schedule is used to determine the amount

of cash that is expected to be collected / received from debtors
during each month of the budgeted period.
• The Debtors Collection Schedule is normally prepared before the
cash budget is drawn up.

Information for preparing the debtors collection schedule

• Expected (budgeted) credit sales to debtors
• Actual credit sales
• Credit policy that determines the period for collecting accounts should include:
o the credit terms to be allowed, e.g. 30 days, 60 days, 90 days, etc.
o the cash discount, the customer can be entitled to when s/he pays before the stipulated date.

EXAMPLE: Debtors Collection Schedule (with Bad Debts)

The information below relates to East Traders for March and April 2020.
REQUIRED:
Prepare the Debtors Collection Schedule for March and April 2020.
INFORMATION:
A. The actual and budgeted Credit Sales of East Traders:
Months Actual Budgeted
(2020) Credit sales Credit sales Actual Sales:
Total REALLY sold
January 180 000
Budgeted Sales:
February 160 000 Estimated / Forecasted Sales
March 200 000
April 240 000

Gr 11 Accounting Term 3, 2020 2

 B. In the past, debtors have settled their accounts as follows
• 50% pay within the month in which the sales took place.
• 30% pay in the following month.
• 15% pay in the second month after the sale.
• 5% is written off as irrecoverable in the third month.
SOLUTION
Explanation for January calculations: (repeat for other months)
50% of the 180 000 (Credit sales for January) would have been received in January
30% of the 180 000 would have been received in February.
[January & February are NOT part of the budgeted period and wiil not be included in the schedule]
March: 15% of the 180 000 is expected to be received in this budgeted period.
April: 5% of the 180 000 is expected to be written off i and will be recorded as bad debts
East Traders
Debtors Collection Schedule for the period 1 March 2020 to 30 April 2020
Months Credit sales March April Bad Debts
X 15% X 5%
January 2020 180 000 27 000 9 000
X 30% X 15% X 5%
February 2020 160 000 48 000 24 000 8 000
X 50% X 30%
March 2020 200 000 100 000 60 000
See the %
X 50%
April 2020 240 000 120 000 'pattern'!
175 000 204 000 17 000

Extract of the Cash Budget of East Traders

March April
CASH RECEIPTS
Cash sales xxx xxx
Receipts from Debtors 175 000 204 000
NOTE: The Bad debts total will NOT appear in the Cash Budget.
The montly amounts will appear in the Projected Income Statement

ACTIVITY 1
The information relates to eWallet Traders for March, April and May 2020.
REQUIRED
Prepare the Debtors Collection Schedule the budgeting period 1 March 2020 to 31 May 2020.
INFORMATION
A Credit Sales totals
Actual Budgeted
January 64 000
February 66 000
March 78 000
April 120 000
May 48 000

B. Debtors usually settle their accounts as follows:

• 60% pay within the month in which the sales took place.
• 20% pay in the following month.
• 17% pay in the second month after the sale.
• 3% is written off as irrecoverable in the third month.

Gr 11 Accounting Term 3, 2020 3

 ACTIVITY 1: ANSWER SHEET
eWallet Traders
Debtors Collection Schedule for the period 1 March 2020 to 31 May 2020

Months Credit sales March April May Bad debts

January 64 000

February 66 000

March 78 000

April 120 000

May 48 000

TOTALS

EXAMPLE: Debtors Collection Schedule (with Discount allowed)

A The actual and budgeted Credit Sales of East Traders:
Months Actual Budgeted
(2020) Credit sales Credit sales
January 180 000
February 160 000
March 200 000
April 240 000

B. Debtors tend to settle their accounts as follows:

• 50% pay in the same month and receive a 5% discount for early payment.
• 30% pay in the following month.
• 15% pay in the second month after the sale.
• 5% is written off as irrecoverable in the third month.

SOLUTION
East Traders
Debtors Collection Schedule for the period 1 March 2020 to 30 April 2020
Months Credit sales March April Bad debts
X 15% X 5%
January 2020 180 000 27 000 9 000
X 30% X 15% X 5%
February 2020 160 000 48 000 24 000 8 000
([200 000 x 50%] x 95%) X 30%
March 2020 200 000 95 000 60 000

(240 000 x 50% x 95%)

April 2020 240 000 114 000
170 000 198 000 17 000
NOTE: Discount is only calculated in the same month as Sales
Calculate the % to be collected first and then the discount on the collection total
Discount may be calculated using various methods.
The example illustrates '95%', which represents 100% (amount collected) LESS 5% (discount)

Gr 11 Accounting Term 3, 2020 4

 ACTIVITY 2
The information below relates to Mafa Traders for the budgeting period 1 January to 31 March 2020.
REQUIRED
Prepare the Debtors Collection Schedule for the period ending 31 March 2020.
INFORMATION
A. Sales
• Total Sales:
2019 2020
Actual Sales Budgeted Sales
November December January February March
575 000 800 000 500 000 350 000 300 000

• 60% of Sales are on credit.

B. Debtors’ collection
In the past, debtors have settled their accounts as follows:
• 20% of debtors settle accounts in the month of the sale to receve 5% discount.
• 30% settle in the 1st month following the sales month (30 days).
• 40% settle in the 2nd month (60 days).
• 10% is written off in the 3rd month (90 days).

ACTIVITY 2: ANSWER SHEET

Mafa Traders
Debtors Collection Schedule for the period 1 January 2020 to 31 March 2020
Months Credit sales January February March Bad debts

Nov 2019

Dec 2019

Jan 2020

Feb 2020

Mar 2020

TOTALS
Lesson Solution
https://wcedeportal.co.za/eresource/135116

Gr 11 Accounting Term 3, 2020 5