Prepare a cash budget, Financial Accounting

Prepare a cash budget

The following information appeared on the balance sheet of XYZ Ltd at 30 June 2012:

                             Accounts receivable                                         80 000

                            Bank overdraft                                                 12 000

                            Accounts payable                                              100 000

                            Provision for income tax (payable in July)            10 000

                            Provision for dividends (payable in August)          20 000

                            Prepaid rent                                                       2 000


Estimated sales and purchases figures for July and August are as follows:

                                                   July                                     August

                            Sales               200 000                              150 000

                            Purchases        124 000                                96 000


Cash sales usually represent 50% of total sales, with 25% of credit sales collected in the same month as the sale, and the remainder in the following month.  Bad debts are so small that they can be ignored.

The company purchases inventory on credit, with all payments made in the month after purchase.

Other information:

  1. A new shareholder has been invited to join the company and will make a capital contribution of $50 000 in July.
  2. The company is planning to pay cash for new equipment costing $45 000 on 31 August. Depreciation expense is $1 000 per month until that purchase.
  3. The company rents its premises. The annual rental payment, due at the end of August, has not changed for a number of years.
  4. The only other expenses of XYZ Ltd, apart from the ones already noted, are freight and salaries. These expenses are paid as incurred. Freight is a variable expense, being 5% of sales for the month. Salaries are fixed at $6 000 per month.


Prepare a cash budget for the months of July and August 2012 (you are not required to show a total column for the two month period).

Posted Date: 2/16/2013 5:01:36 AM | Location : United States

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