Budget Chapter

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TOPIC 7 cont.: ACCOUNTING FOR SHORT-TERM MANAGEMENT PLANNING

Lecture Illustration
CASH FLOWS
Oz designs is in the process of preparing a cash budget for the three months of April, May and June 20X9. All sales are on credit. The company collects 50% of its sales in the month the sales are made, 40% in the month following the sale and 10% in the second month following the sale. 75% of all purchases are paid for in the month they are purchased, with the remaining 25% paid for in the following month. The selling expenses are $24,000 each month. Administrative expenses are $155,000 per month, including $45,000 of depreciation expense. Expenses are paid in the month they are incurred. The cash balance on 1 April 20X9 is $12,000. The following sales and purchases data in 20X9 have been compiled for the preparation of the budget: February $ 220,000 75,000 March $ 240,000 90,000 April $ 210,000 85,000 May $ 250,000 100,000 June $ 260,000 80,000

Sales Purchases

REQUIRED: (a) Prepare a cash receipts schedule and a cash payments for purchases schedule for the months of April, May and June 20X9. (b) Prepare a cash budget for the months of April, May and June 20X9.

TOPIC 7 cont. - Additional Tutorial Question (Cash Budgeting) The owner of Tiger Trading Ltd. has approached you to help her to predict what the cash balance for her business will be at the end of April, May and June, 20X9. To assist your task, she has provided you with the following information:

Budgeted Income Statement for the month ending 20X9
30 April Sales LESS: Cost of Sales GROSS PROFIT LESS EXPENSES: Salaries/Wages General Expenses Depreciation TOTAL EXPENSES NET PROFIT ADDITIONAL INFORMATION: all sales are made on credit: 60% of debtors pay in the month following the sale; 30% of debtors pay in the second month following the sale; 10% of debtors pay in the third month following the sale. (All purchases are made on credit) Purchases for March were $30,000 Throughout the three months,...
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