Post on 30-May-2018
8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
Example:
Begin Balance 5000Add Cash Received inflows 7000
Total cash available 12000Less: Cash Payment (4500)Net Cash available 7500Borrow 500Mine level of cash 8000
If we assume the previous cash Budget for Jan. then the begin Balance forFeb is 8000.
Notes:
Disbursements not cash so we will not include it in the cash flow Taxes for 2004 will pay in 2005 so it will be calculated in the cashbudget of 2005, but will be in the income statement of 2004.
Example:
P 24-4 ABadger Company prepares monthly cash budgets. Relevant data from
operating budgets for 1996 are
Chapter 7 1
January February
Sales $350,000 $400,000Direct materialspurchases
120,000 130,000
Direct labor 80,000 95,000Manufacturingoverhead
70,000 75,000
Selling andadministrativeexpenses
79,000 86,000
8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
All sales are on account. Collections are expected to be 50% in the monthof sales, 40% in the first month following the sales, and 10% in the second
month following the sales. Fifty percent of direct material purchases are paidin cash in the month of purchases and the balance due is paid in the monthfollowing the purchase. All other items above are paid in the month incurredexcept for selling and administrative expenses that includes $1000 ofdepreciation per month.Other data
1. Credit sales Nov. 1995, $260,000- Dec.1995,$300,0002. Purchases of direct materials Dec. 1995, $100,000
3. Other receipts Jan.: collection of Dec. 31,1995, notes receivable
$15,000. Feb: proceeds from sale of securities $6,0004. Other disbursements Feb withdrawal of $5,000 cash for personaluse of owner T.Kempen
The companys cash balance on Jan 1, 1996, is expected to be $55,000.The company wants to maintain a minimum cash balance of $50,000
Instructions:
Prepare schedules for1 expected collections from customers and 2expected payments from direct materials purchases. Prepare a cash budget for Jan. and Feb. in columnar form.
Solution
To calculate Expected collection of the customer we must calculate howmuch we calculate from sales
Sales
Month of thesales
First monthafter sales
Secondmonth aftersales
50% 40 % 10%
Expected collection from customers
19951996
Nov. Dec. January FebruaryNovember($ 260,000)
130,000 104,000 26,000 0
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
December($300,000)
0 150,000 120,000 30,000
January($ 350,000)
0 0 175,000 140,000
February($400,000)
0 0 0 200,000
Totals 130,000 254,000 321,000 370,000
1995 1996Dec. January February
December($100,000)
50,000 50,000 0
January($ 120,000)
0 60,000 60,000
February($130,000)
0 0 65,000
Totals 50,000 110,000 125,000
Expected Payments for Direct Materials
Purchases
Month of thePurchase
First monthafterPurchase
50% 50 %
1995 1996Dec. January February
December($100,000)
50,000 50,000 0
January($ 120,000)
0 60,000 60,000
February($130,000) 0 0 65,000
Totals 50,000 110,000 125,000
Cash Budget
Total available
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
We must calculate the first month and then the second month
1. January
January
Begin cash balance 55,000Add Receipts
Collections from customers 321,000Notes receivable 15,000Sales of securities 0Total receipts 336,000Total available cash 391,000
Ending cash balance
Less: DisbursementsDirect Materials 110,000Direct labor 80,000Manufacturing overhead 70,000Selling and administrative expenses 78,000Withdrawal by ownerTotal disbursements 338,000Excess (deficiency) of availableCash over
53,000
Financing
Borrowings 0
Repayments 0Ending cash balance 53,000
Begin cash balance for Feb. is 53,000
2. February
JanuaryBegin cash balance 53,000Add Receipts
Collections from customers 370,000
Notes receivable 0Sales of securities 6,000Total receipts 376,000Total available cash 429,000
Ending cash balance for February
Less: Disbursements
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
Direct Materials 125,000Direct labor 95,000Manufacturing overhead 75,000Selling and administrative expenses 85,000Withdrawal by ownerTotal disbursements 385,000Excess (deficiency) of availableCash over
44,000
FinancingBorrowings 6,000Repayments 0Ending cash balance 50,000
Types of Disbursements
Amortization
Depilation Example
From Presentation slide 7-33
Begin cash Balance 15,000ReceiptTotal cash available 44.000- Payment 9,000Net cash available 35,000
Min level of cash 50,000Difference 15,000
Payment +Ending balance =needed = cash available +begin cash balance50,000+9,000 =59,00044,000+15,000=59,000Ending balance containso Borrowingo Net cash
Ending cash balance = Total cash available before financing total
disbursements +cash from financing
The cash from financing can be either positive (borrowing) or negative(repayment)
Example
Begin cash Balance 10000
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 8
Receipt 40000Total cash available 50.000- Payment 35,000Net cash available 15,000Borrowing 7000
Min level of cash 22,000
Total cash available = Receipt+ Begin + borrowingTotal cash needed = payment + Receipt+ endingEnding may be consists of two parts borrowing and net
Differences between the budget income statement and the balance sheet
Budget income statementsSales
-----Profit
Balance sheet
ProfitEquity
Sales = sales units * USPSales units affected by product, market, level of qualityUSP affected by income
Chapter 7 6