Francis and Company have planned a cash budget for the third quarter of 2004. The cash balance on July 1, 2004, is expected to be an overdraft of $82,000. Extracts from the sales and purchases budgets are as follows: Month Budgeted Sales Budgeted Purchases May $800,000 June $900,000 $600,000 July $750,000 $550,000 August $650,000 $450,000 September $800,000 $500,000 All sales are on credit and an analysis of the records shows that debtors settle according to the following pattern, in accordance with the credit terms 5/30, n90: 50% in the month of sale 30% in the month following sale 20% the following month All purchases are on credit and past experience shows that 80% are settled in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance will be disbursed in the month after purchase. The credit terms of the suppliers - 10/30, n60. Wages and salaries are expected to be $1,800,000 per annum and are paid monthly. Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $2,400,000 per annum, (including depreciation on fixed assets of $60,000 per month) and is settled monthly. Taxation of $80,000 has to be settled in August The company is expected to receive settlement on an insurance claim of $50,000 in September. vii) Interest on investment in other companies of $25,000 is expected in July 2004. A short-term investment in JMMB Ltd. of $80,000 will be liquidated in September 2004. The business has made arrangements with their bankers for a loan of $250,000. The loan will be disbursed in two tranches: July 1, 2004 $150,000 November 1, 2004 $100,000 Required: (a) Prepare a schedule of expected cash collections for sales for each of the months July to September. (b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2004. (c) Prepare a cash budget, with a total column, for the quarter ending September 30, 2004, showing the expected receipts and payments for each month. provide working notes for each question
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Francis and Company have planned a
Extracts from the sales and purchases budgets are as follows:
|
Month |
Budgeted Sales |
Budgeted Purchases |
|
May |
$800,000 |
|
|
June |
$900,000 |
$600,000 |
|
July |
$750,000 |
$550,000 |
|
August |
$650,000 |
$450,000 |
|
September |
$800,000 |
$500,000 |
|
|
|
|
- All sales are on credit and an analysis of the records shows that debtors settle according to the following pattern, in accordance with the credit terms 5/30, n90:
50% in the month of sale
30% in the month following sale
20% the following month
- All purchases are on credit and past experience shows that 80% are settled in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance will be disbursed in the month after purchase. The credit terms of the suppliers - 10/30, n60.
- Wages and salaries are expected to be $1,800,000 per annum and are paid monthly.
- Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $2,400,000 per annum, (including
depreciation on fixed assets of $60,000 per month) and is settled monthly. Taxation of $80,000 has to be settled in August
- The company is expected to receive settlement on an insurance claim of $50,000 in September. vii) Interest on investment in other companies of $25,000 is expected in July 2004.
- A short-term investment in JMMB Ltd. of $80,000 will be liquidated in September 2004.
- The business has made arrangements with their bankers for a loan of $250,000. The loan will be disbursed in two tranches:
July 1, 2004 $150,000
November 1, 2004 $100,000
Required:
(a) Prepare a schedule of expected cash collections for sales for each of the months July to September.
(b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2004.
(c) Prepare a cash budget, with a total column, for the quarter ending September 30, 2004, showing the expected receipts and payments for each month.
provide working notes for each question
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