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How to prepare Cash Budget under different methods?

 Today we will discuss about how to prepare cash budget under different methods? First method is receipt and payment method.

Receipt and Payment method:

Example: From the following information, prepare 3 months cash budget from April to June. Find out the deficits or surplus.

Months
Sales
Salary & Wages
Material
Purchase
March
1, 70,000
19, 000
35, 000
48, 000
April
2, 20,000
25, 000
29, 000
62, 000
May
1, 56,320
16,890
21, 000
32, 200
June
3, 25,000
35, 000
26, 000
56, 360

·         80% of sales were made in credit and 20% in cash.
·         70% of credit sales will be collected in next month and remaining amount collected in second months.
·         The repairing expense of a machine is Rs.10, 000 quarterly.
·         The opening cash balance in April is Rs.30, 000.

Solution:  Cash Budget for 3 months

Particulars
April (in Rs.)
May (in Rs.)
June (in Rs.)
Receipts:
Opening cash balance
30, 000
----
----
Sales in cash
44, 000
31, 264
65, 000
Collected from debtors
95, 200
1, 64, 000
1, 40, 339
Total
1, 69, 200
1, 95, 264
2, 05,339
Payments:
Purchases
62,000
32, 200
56, 360
Repair cost
10, 000
----
------
Material
29, 000
21, 000
26, 000
Salary & Wages
25, 000
16, 890
35, 000
Total
1, 26, 000
70, 090
1, 17, 360
Surplus
43, 200
1, 25, 174
87, 979

Working note:
Collected from debtors
April
May
June
Next or first month
95, 200
1, 23,200
87, 539
Second month
-----
40, 800
52, 800
Total
95, 200
1, 64, 000
1, 40, 339


Adjusted Profit & Loss Method:

Example: With the help of following information, prepare cash budget by using adjusted profit & loss method.
                                                Balance Sheet
                                        as on 31 December 2009
Liabilities
Amount
Assets
Amount
Share capital
80,000
Cash
8, 800
Creditors
45, 000
Stock
30, 000
Profit & loss A/c
2,000
Debtors
20, 000
Investment
69, 000
1, 27,000
1, 27,000

                                               Profit & Loss A/c
                                  for the year ending 31 December 2009
Particulars
Amount
Particulars
Amount
To administrative
 Expense
2, 000
By gross profit
26, 150
To salary & wages
10, 000
By profit on sale of asset
1, 250
To interest
8, 400
To tax
5, 000
To net profit & loss a/c
12, 000
27, 400
27, 400
To dividend paid
5, 600
By net profit b/d
12, 000
To balance c/d
8, 400
12, 000
12, 000

Other information is:
·         On December 31 creditors: Rs.30, 000, debtors: Rs.28, 000, stock : Rs. 10,000, share capital : Rs. 90,000 and Outstanding expense: Rs.10, 000.

Solution:

                            Cash Budget
                   For the year ended 2009

Particulars
Amount
Amount
Opening balance
8, 800
Add: net profit
12, 000
Issue of share capital
10, 000
Outstanding expense
10,000
Loss on sale of fixed assets
1, 250
Decrease in stock
20, 000
43, 250
Total (A)
62, 050
Less: Increase in debtors
8, 000
Decrease in creditors
15, 000
Payment of dividend
5, 600
Total (B)
28, 600
Closing balance  (A-B)
33, 450

Balance Sheet Method:

Example: With the help of above example prepare cash budget by  using balance sheet method and find out cash.

Solution:
                                                Balance Sheet
                                        As on 31 December 2009

Liabilities
Amount
Assets
Amount
Share capital
90,000
Investment
69, 000
Creditors
30, 000
Stock
10, 000
*Profit & loss A/c
8, 400
Debtors
28, 000
Outstanding expense
10, 000
Cash (balancing figure)
31, 400
1, 38,400
1, 38,400

*Profit & loss a/c = 12, 000 – 5, 600 = 6, 400

= 6, 400 + 2, 000 = 8, 400

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