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It is computed as follows:
• Rent payments
• Wages and Salaries of selling and administrative personnel
• Administrative Costs
• Travel and representation expenses
• Professional fees
• Interest Payments
The cash budget, or cash forecast, is a statement of the firm’s planned inflows and
outflows of cash. It is used by the firm to estimate its short-term cash
requirements, with particular attention being paid to planning for surplus cash and
for cash shortages (Gitman & Zutter, 2012).
A. From the sales forecast, identify how much would be
collected in the cash budget period. Sales may be made in
cash or for credit.
Continuing from previous example:
Examples:
• Fixed-asset purchases in cash of Php 130, 000 are to be paid
in April.
• Interest payment is paid on May for Php 10, 000.
• Cash dividend payments amounting to Php 20, 000 are to be
paid on January.
• Principal Payments amounting to Php 20,000 are to be paid
on February.
F. Match the receipts and disbursements on the periods they
become collectible and payable, respectively.
G. Set a minimum required cash balance. This balance is
maintained in case contingencies arise.
H. If the net cash flow is above the minimum cash balance, the
company is in excess cash and may consider putting it in short
term investments. If it is below, the company should make a
short term borrowing during that period.
Moreover, Company has a beginning cash balance of PHP80,000
and would like to maintain an ending cash balance of PHP100,000
per month. Prepare Company’s Cash Budget for January to May.
Prepare a cash budget.
Evaluating the Cash Budget:
‣ If the ending cash balance after payment of all required
disbursements is less than the required ending balance, the
company needs to borrow additional cash from short term
borrowings to meet its required ending balance. Should the
ending cash balance exceed the company’s minimum cash
requirement the next period, the company may be able to repay
the loan plus accrued interest.
‣ Should the Company have excess cash above its required
maintaining cash balance, the company may invest this cash on
short term investments so that it will have an opportunity to
earn additional profits. If the company’s cash balance would
Company forecasts sales in units for January to March as follows:
January February March
Units 2000 3000 4000
Assume that the selling price is PHP 300/unit and are expected to be collected as follows:
o Month of sales: 20%
o A month after sales: 50%
o 2 months after sales: 30%
Interest received in January amounted to Php 50 000.
The company would like to maintain the following units per month:
January February March
Units 500 750 850
Beginning inventory at the start of January amounts to 75 units.
Assume that the cost per unit is Php 275
All purchases are paid in the following month.
Rent payments: Rent of PHP 7 000 will be paid each month.
Wages and salaries: Fixed salaries for the year are PHP96,000, or PHP8,000 per month. Wages are estimated as 10% of
monthly sales.
Taxes of Php 10 000 will be paid on March.
Moreover, company has beginning cash balance of Php 75 000 and would like to maintain an ending cash balance of
Php 100 000/month
Company forecasts sales in units for January to March as follows:
January February March
Units 2500 3500 45000
Assume that the selling price is PHP 500/unit and are expected to be collected as follows:
o Month of sales: 20%
o A month after sales: 50%
o 2 months after sales: 30%
Interest received in March amounted to Php 35 000.
The company would like to maintain the following units per month:
January February March
Units 1200 1500 1600
Beginning inventory at the start of January amounts to 150 units.
Assume that the cost per unit is Php 300
All purchases are paid in the following month.
Rent payments: Rent of PHP 9 000 will be paid each month.
Wages and salaries: Fixed salaries for the year are PHP60,000, or PHP 5,000 per month. Wages are estimated as 15% of
monthly sales.
Taxes of Php 50 000 will be paid on February.
Moreover, company has beginning cash balance of Php 80 000 and would like to maintain an ending cash balance of
Php 250 000/month