Morgan and Company has 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 BudgetedSales BudgetedPurchases May $800,000 June $900,000 $600,000 July $750,000 $550,000 August $650,000 $450,000 September $800,000 $500,000 i) 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 ii) 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. iii) Wages and salaries are expected to be $1,800,000 per annum and are paid monthly. iv) 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. v) 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. viii) A short-term investment in JMMB Ltd. of $80,000 will be liquidated in September 2004. ix) 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 (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.
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.
Morgan and Company has planned a
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 BudgetedSales BudgetedPurchases
May $800,000
June $900,000 $600,000
July $750,000 $550,000
August $650,000 $450,000
September $800,000 $500,000
i) 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
ii) 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.
iii) Wages and salaries are expected to be $1,800,000 per annum and are paid
monthly.
iv) 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.
v)
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.
viii) A short-term investment in JMMB Ltd. of $80,000 will be liquidated in
September 2004.
ix) 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
(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.
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