Budgeting

E9.27 Preparation of a Cash budget

1. Cash budget

| January | February | March |

Operating cash balance | (200,000) | | |

Plus Cash received from consultations | | | |

Two months ago | 40,000 | 45,000 | 7,500 |

Last month | 45,000 | 15,000 | 45,000 |

Current month | 45,000 | 135,000 | 120,000 |

Total cash receipts | 130,000 | 195,000 | 172,500 |

Less Cash payment | | | |

Supplies | | | |

Previous month purchases | (37,500) | | (62,500) |

Current month purchases | | (62,500) | |

Less Salaries | (100,000) | (100,000) | (100,000) |

Less Other costs | (75,000) | (75,000) | (75,000) |

Total cash payments | (212,500) | (237,500) | (237,500) |

Closing cash balance | (282,500) | (42,500) | (65,000) |

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2. Proper budgeting can help with forecasting the cash shortages and enable managers to control what and how much to purchase versus budgeted income in order to keep positive cash balance.It the case given above, Happy Pets has had constantly high spending on salaries which takes up to about 77%, 51% and 58% of its monthly cash receipts respectively, combined with high monthly spending on other costs and supplies purchases, even though its cash collection strategies has the potential of improving its cash income, the cash balance is hardly to be positive.Managers may consider using budgeting forecasts as a tool to cut off some unnecessary expenditure and may be putting some staff on part- time basis or even personnel layoffs. Large expenses may be mortised lessening financial stress of each period. The monthly collection may be altered and the focus may be given to the month with largest budgeted cash outflows and that 10% of uncollected receivables shall be taken care of, may be outsourcing collection process to debts collecting professionals. | | | |

P9.40 Preparation of an Annual budget

1. Sales budget

Sales budget | | Box type C | Box type P | |

Sales volume...