SALLAT Household Furnishings & Appliances is a family-owned business. You are the management accountant of the entity and have been given the task of preparing the cash budget for the business for the quarter ending September 30, 2022. Your data collection has yielded the following: i) Extracts from the sales and purchases budgets are as follows: Cash Sales Cash Purchases Month Sales On Account Purchases On Account $480,000 $600,000 $720,000 $640,000 $800,000 May June July August September $75,000 $135,000 $86,800 $105,600 $112,500 $36,000 $61,700 $68,800 $77,250 $390,000 $360,000 $450,000 $400,000 $500,000 ii) An analysis of the records shows that trade receivables (accounts receivable) for sales on account are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90: 50% in the month of sale 35% in the first month following the sale 15% in the second month following the sale i) Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60: 70% in the month in which the inventory is purchased 30% in the following month Computer equipment, which is estimated to cost $350,000, will be acquired in August. The manager has planned with the supplier to make a cash deposit of 50% of the amount upon signing of the agreement in August, with the balance to be settled in four equal monthly instalments, starting in September 2022. iv) A treasury bond purchased by the company with a face value of $560,000 is expected to mature on July 20, 2022. To meet the financial obligations of the business the management team has decided to liquidate the investment upon maturity. On that date, quarterly interest computed at a rate of 7% % per annum is also expected to be collected. v) vi) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,812,000 per annum [including depreciation on non-current assets of $37,000 per month] and are settled monthly. vii) The management Sallat Household has negotiated with a tenant for rental of storage space beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over by the tenant quarterly in advance. Rental relating to the quarter under review becomes due on July 1. viii) Other operating expenses are expected to be $432,000 per annum and will be settled monthly.
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.
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