Cash Budgets
Cash Budgets
These are used by management as a guide to planning, control and decision-making. • So we can see when commitments are due so the business can make payments on time, maintaining a good reputation and being able to obtain credit • To show when the business has excess funds which should be invested to earn interest in either the short-term money market, in a fixed term deposit, in government stock or in an investment account (rather than a cheque account) • To control by comparing actual figures to budgeted figures, ensuring costs are kept within target levels • To show if there is a problem with collection of accounts receivable • To show when shortages of funds may occur • To allow the business to seek the best source of funds and minimise interest expenses
Worked Example
Horatio Jones requires a cash budget for June and July 2004. Estimated figures:
| |June |July |
|Estimated Payments | | |
|Wages |600 |600 |
|Cash Purchases |7 400 |8 300 |
|Rent |700 |700 |
|Estimated Receipts | | |
|Cash Sales |15 000 |8 000 |
|Interest | |1 000 |
There is a debit bank balance at 1 June 2004 of $6000
BRACKET NEGATIVE FIGURES
Horatio Jones
Cash Budget for June and July 2004
| |June |July |
|Estimated Cash Receipts | | |
|Cash Sales
These are used by management as a guide to planning, control and decision-making. • So we can see when commitments are due so the business can make payments on time, maintaining a good reputation and being able to obtain credit • To show when the business has excess funds which should be invested to earn interest in either the short-term money market, in a fixed term deposit, in government stock or in an investment account (rather than a cheque account) • To control by comparing actual figures to budgeted figures, ensuring costs are kept within target levels • To show if there is a problem with collection of accounts receivable • To show when shortages of funds may occur • To allow the business to seek the best source of funds and minimise interest expenses
Worked Example
Horatio Jones requires a cash budget for June and July 2004. Estimated figures:
| |June |July |
|Estimated Payments | | |
|Wages |600 |600 |
|Cash Purchases |7 400 |8 300 |
|Rent |700 |700 |
|Estimated Receipts | | |
|Cash Sales |15 000 |8 000 |
|Interest | |1 000 |
There is a debit bank balance at 1 June 2004 of $6000
BRACKET NEGATIVE FIGURES
Horatio Jones
Cash Budget for June and July 2004
| |June |July |
|Estimated Cash Receipts | | |
|Cash Sales