In my cash disbursement schedule of my cash budget, the purchases which are 80% of sales, are incurred in the month the sales are made. These goods are paid 30% in cash and 70% within 30 days. The part that confuses me is the 'within 30 days'. My other questions said goods are paid 30 days after. So when its within 30 days is the payment period considered cash and we're paying 100% in the month? Thanks
Lynn from Canada
Lynn! Cash budget is just estimation of cash payment and receipt of cash. But when you act upon on this cash budget, it will become the part of your accounting. In first cash, if you have paid 70% of total purchase within 30 days. It means, 100% payment in that month. Suppose, you are closing your financial year. Purchase of goods is also your direct expenses. So, in case within 30 days payment, purchase expenses will be added our that financial year as expense not o/s expense. If it will be paid 30 days after, we will show 70% of goods purchase expenses as O/s expenses. On side, it will be added in our income and expenditure account for knowing net profit and other side, we will show 70% of goods purchase expenses as sundry creditor in the liability side of balance sheet. This accounting will be the part of accrual base accounting. If you are interested to know the difference between the accrual based accounting and cash based accounting, you should read this at here.