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Cash Budget Example

>> May 21, 2011

I have already explained that cash budgeting is estimation of future receipts and payments of cash. It is helpful to analyze the flow of cash. It is also helpful to plan and control our expenses payment. With this, we can find future need of cash.

In cash budget, first of all, we estimates our all incomes like cash from sales, cash from interest, dividends and other receipts. After this, we estimates our all expenses. If our cash receipts are less than total cash payment, we may take decision to get cash through loan.

Today, we will focus on one cash budget example because we think, examples might be simplified to improve reading and basic understanding of any topic of accounting.

Example . From the following forecasts of income and expenditure, prepare a cash budget for the months Jan. to April 2011.

Months Sales (Credit) Purchase (Credit) Wages Manufacturing expenses Administrative expenses Selling expenses
2010 Nov. 30000 15000 3000 1150 1060 500
Dec. 35000 20000 3200 1225 1040 550
2011 Jan. 25000 15000 2500 990 1100 600
Feb. 30000 20000 3000 1050 1150 620
March 35000 22500 2400 1100 1220 570
April 40000 25000 2600 1200 1180 710

Additional information in follows :

1. The customers  are allowed a credit period of two months.

2. A dividend of $ 10000 in payable April.

3. Capital expenditure which has to be incurred  : 15th Jan. $ 5000, we will buy a plant and in march, we will buy a building on loan and its payment will be done with in monthly installments of $ 2000 each.

4. The creditor are allowing a credit of 2 months.

5. Wages are paid on the 1st of the next months.

6. Lag in payment of other expenses is one month.

7. Balance of cash in hand on 1st Jan. 2011 is $ 15000.

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