Chapter 22, Problem 24QS

To determine

Concept Introduction:

A budget is prepared to know the estimates related to a particular item. There can be budgeted income statement, budgeted balance sheet, cash budget, merchandise budget, sales budget etc. A budget can be used as a good tool for the planning and controlling purposes.

A cash budget is an estimate of expected cash receipts and cash payments and the excess cash available with the business.

To prepare:

Cash budget for Gado Company for the Month ended on March 31.

Answer to Problem 24QS

Solution:

Cash budget for Gado Company for the Month ended on March 31 is prepared as under −

Gado Company
Cash Budget
For the Month Ended March 31
Beginning cash balance	72,000
Cash receipts from sales	300000
Total cash available		3,72,000
Cash Disbursements
Payment for purchases	1,40,000
Salaries	80,000
Other expenses	45,000
Repayment of bank loan	20,000
Total cash disbursements		2,85,000
Ending cash balance (Excess of cash available over cash disbursements)		87,000

Explanation of Solution

The preparation of cash budget can be explained as under.

A cash budget is an estimated summary of cash available and cash disbursement and then excess of cash available over cash disbursements or deficiency of cash available over cash disbursements will be calculated.

A cash budget is divided into three parts −

• Total cash available
• Total cash disbursements
• Ending cash balance (Can be excess as well as deficiency)

1. The total cash available is calculated as under −

  $Totalcashavailable=Beginningcashbalance+Cashreceiptsfromsales$

Given,

• Beginning cash balance = $ 72,000
• Cash receipts from sales = $ 300,000

  $\begin{array}{l}Totalcashavailable=\$72,000+\$300,000\\ Totalcashavailable=\$372,0000\end{array}$

Thus, total cash available = $ 372,000.

1. The total cash disbursements are calculated as under −
Total cash disbursements = Budgeted cash payments for direct materials + Budgeted cash payments for direct labor + Other budgeted cash expenses + Cash repayment of bank loan

  $\begin{array}{l}Totalcashdisbursements=\\ Budgetedcashpaymentsfordirectmaterials\\ +Budgetedcashpaymentsfordirectlabor\\ +Otherbudgetedcashexpenses\\ +Cashrepaymentofbankloan\end{array}$

  $\begin{array}{l}Totalcashdisbursements=\text{\$ 140,000}+\text{ \$ 80,000 }+\text{ \$ 45,000}+\text{ \$ 20,000}\\ Totalcashdisbursements=\$285,000\end{array}$

Thus, total cash disbursements = $ 285,000.

1. Ending cash balance (Can be excess as well as deficiency)

  $Endingcashbalance=Totalcashavailable-Totalcashdisbursements$

Given,

• Total cash available = $ 372,000
• Total cash disbursements = $ 285,000

  $\begin{array}{l}Endingcashbalance=\text{ \$ 372,000 }-\text{ \$ 285,000}\\ Endingcashbalance=\$87,000\end{array}$

Thus, the ending balance of cash = $ 87,000.

Conclusion

Thus, the cash budget for Gado Company for the month March has been prepared.