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Cash Budgeting Jack Manning had the following assets, liabilities and capital on 01/01/2018: Assets € Fixed assets 305,000 Stock 32,000 Cash 31,200 Debtors 82,100 450,300 Liabilities Creditors 50,300 Capital 400,000 450,300 The expected sales and purchases for the next 5 months are as follows: Sales Purchases Jan Feb Mar Apr May Total Jan Feb Mar Apr May Total €44,200 €89,400 €88,100 €57,900 €81,600 €361,200 €48,100 €48,200 €42,300 €34,700 €34,600 €207,800 - All sales are on credit and are paid for one month after sale - Leaving Cert Accounting - Question 9 - 2018
Question 9
Cash Budgeting Jack Manning had the following assets, liabilities and capital on 01/01/2018: Assets € Fixed assets 305,000 Stock 32,000 Cash 31,200 Debtors ... show full transcript
Worked Solution & Example Answer:Cash Budgeting Jack Manning had the following assets, liabilities and capital on 01/01/2018: Assets € Fixed assets 305,000 Stock 32,000 Cash 31,200 Debtors 82,100 450,300 Liabilities Creditors 50,300 Capital 400,000 450,300 The expected sales and purchases for the next 5 months are as follows: Sales Purchases Jan Feb Mar Apr May Total Jan Feb Mar Apr May Total €44,200 €89,400 €88,100 €57,900 €81,600 €361,200 €48,100 €48,200 €42,300 €34,700 €34,600 €207,800 - All sales are on credit and are paid for one month after sale - Leaving Cert Accounting - Question 9 - 2018
Step 1
Prepare a cash budget showing Jack Manning’s expected monthly receipts and payments for the five months January to May 2018 and also the total column for the period.
Answer
Cash Budget for January to May 2018
Receipts
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Debtors:
- January: €82,100
- February: €44,200
- March: €89,400
- April: €88,100
- May: €57,900
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Total Receipts:
- January: €82,100
- February: €44,200
- March: €89,400
- April: €88,100
- May: €57,900
- Total: €361,200
Payments
-
Purchases:
- January: €48,100
- February: €48,200
- March: €42,300
- April: €34,700
- May: €34,600
-
Wages: €16,400
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Equipment: €6,000 (in March)
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Rent:
- January: €3,500
- February: €3,500
- March: €3,500
- April: €3,500
- May: €3,500
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Total Payments:
- January: €70,200
- February: €70,600
- March: €78,200
- April: €100,600
- May: €34,600
- Total: €223,200
Net Cash
- Opening Cash (01/01/2018): €31,200
- Closing Cash (31/05/2018):
- Net Cash: €31,200 + Total Receipts - Total Payments
- Closing Cash: €63,600
Summary
- Net Cash Flow:
- January: €11,900
- February: (€23,300)
- March: €19,800
- April: (€22,600)
- May: €31,300
- Closing Cash: €63,600
Final Cash Budget
| Month | Opening Cash | Total Receipts | Total Payments | Closing Cash |
|---|---|---|---|---|
| January | €31,200 | €82,100 | €70,200 | €43,100 |
| February | €43,100 | €44,200 | €70,600 | €16,700 |
| March | €16,700 | €89,400 | €78,200 | €28,900 |
| April | €28,900 | €88,100 | €100,600 | €16,400 |
| May | €16,400 | €57,900 | €34,600 | €39,700 |
| Total | €361,200 | €223,200 | €63,600 |
Step 2
Prepare a budgeted balance sheet as at 31/05/2018.
Answer
Budgeted Balance Sheet at 31/05/2018
Fixed Assets
- Fixed Assets: €311,000
Current Assets
- Stock: €29,100
- Debtors: €81,600
- Cash: €63,600
- Total Current Assets: €174,300
Current Liabilities
- Creditors: €34,500
- Working Capital: €140,000
Financed by
- Capital: €400,000
- Net Profit: €51,000
- Total Liabilities: €451,000
Summary
| Assets | Amount (€) | Liabilities | Amount (€) |
|---|---|---|---|
| Fixed Assets | 311,000 | Creditors | 34,500 |
| Current Assets | 174,300 | Working Capital | 140,000 |
| Total Assets | 485,300 | Total Liabilities | 451,000 |
Step 3
Outline two benefits for Manning in preparing a cash budget.
Answer
Benefits of Preparing a Cash Budget
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Cash Flow Management: Preparing a cash budget allows Jack Manning to have a clear overview of expected cash inflows and outflows. This helps him to identify any potential cash shortages or surpluses, enabling timely financial planning and decision-making.
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Improved Financial Decision-Making: Having a cash budget will help Jack decide when a bank overdraft might be needed and manage expenses to avoid overspending. This ensures that he has the necessary funds available when required for operational purposes.