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Creating the Cash Budget

Creating the Cash Budget. Cash Budget. Typical Cash Budget. A cash budget will be created from this estimate of future monthly net income. Dec. 60 30. We must start with these estimates. But where do they come from?. Cash Flow: Estimates from monthly income statement. Notes:.

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Creating the Cash Budget

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  1. Creating the Cash Budget

  2. Cash Budget

  3. Typical Cash Budget

  4. A cash budget will be created from this estimate of future monthly net income. Dec 60 30

  5. We must start with these estimates. But where do they come from?

  6. Cash Flow: Estimates from monthly income statement

  7. Notes: All items are sold on one month credit. All items are purchased on one month credit. Business keeps constant inventory (so COGS = trade payables payments) except in March, when it is permanently reduced by 5. Salaries, wages and overheads are paid when incurred. Electricity is paid quarterly in arrears in March and June. In March a new van will be purchased at a net cost of 11. The business is starting with 12 cash in January.

  8. Cash Flow: Estimates from monthly income statement 2. Trade payable payments = COGS 1 month later 1. Trade receivable receipts = Sales 1 month later 5. Electric paid after, quarterly in March and June 3. In April payable payments = March COGS - 5 6. Van purchased for 11 in March 7

  9. Question: What is the difference between the cash budget and a forecast for cash from the cash flow statement?

  10. Preparing Other Budgets

  11. a b c * The reason that this exercise is a bit silly is because of the assumption that all sales are on credit and paid in one month. This is why (a) increase in receivables = sales revenue same month, and (b) decrease in receivables = sales month before. This makes the trade receivables closing balance (c) = sales same month.

  12. Other budgets * Given the assumptions in this example, these figures are equally silly.

  13. What’s wrong with conventional budgets?

  14. What’s wrong with conventional budgets? (cont.)

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