Example: The president of OLM Corporation wants to find

out if the company has enough cash to pay the company’s

loan worth Php 300,000.00 by the end of 2020.
a.The projected quarterly sales for the year 2020 are as
follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 1,010,000 Php 1,110,000 Php 1,210,000 Php 1,310,000
The fourth quarter sales in 2019 were Php 900,000.00.
Eighty-five percent (85%) of the sales are collected in the
Quarter 1 of the sales. The remaining fifteen percent (15%) is
collected in the following quarter.
b. Assume that the operating expenses for each quarter are
as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 101,000 Php 111,000 Php 121,000 Php 131,000
c. Cost of sales is 75% of sales.
d. Interest expenses paid every quarter is Php 15,000.00.
e. Income tax rate is 30%.
These are the income taxes to be paid every quarter.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Php 30,000 Php 45,000 Php 50,000 Php 55,000
f. Expected cash balance at the end of 2019 is about Php
40,000.00. For 2020, target cash is raised to Php 100,000.00
because of expected increase in sales.
To compute for the cash budget, follow these steps:
1. Compute for the cash receipts. Identify how much will be
collected from the sales.
a. Multiply the projected sales per quarter by the
percentages of sales collection.
b. Multiply the projected sales per quarter by the
remaining percentages of sales collection. Use the last
quarter sales of last year for the first quarter. Then use
Quarter 1 to Quarter 3 sales for year 2020.
c. Add the Quarter of Sale and the Quarter after Sale.
2. Compute for the cash disbursements. Identify all the
payments to be made and add all expenses.

3. Subtract the cash disbursement from the cash receipts to

get the net cash flow.

4. Add the beginning cash balance and then subtract the

minimum cash balance. If the minimum cash balance is less
than the ending cash balance, the firm has excess cash. If the
minimum cash balance is greater than the ending cash
balance, the firm requires financing.