Required: Prepare a cash collection summary from sales for the first quarter of 2021. Prepare a payment summary for purchases for the first quarter of 2021. Prepare a cash budget for the first quarter of 2021. Clearly show the amounts for cash sales, credit sales, cash purchases, credit purchases and totals.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Cash budgeting is critical to a company’s financial information needs. The following information was extracted from the records of A & B Manufacturing Company Limited. The opening cash balances on January 01, 2021 was expected to be $30,000. The budgeted sales were as follows:
Budgeted Sales
|
Month Year |
$ |
|
November 2020 |
80,000 |
|
December 2020 |
90,000 |
|
January 2021 |
80,000 |
|
February 2021 |
75,000 |
|
March 2021 |
60,000 |
|
April 2021 |
70,000 |
Analysis of records shows that debtors settle according to the following pattern:
- 70% within the month of sale
- 30% the following month
Extracts of the purchases budget were as follows:
Purchases budget
|
Month Year |
$ |
|
December 2020 |
65,000 |
|
January 2021 |
50,000 |
|
February 2021 |
75,000 |
|
March 2021 |
70,000 |
- All purchases are on credit and past experience shows that 90% are settled in the month of purchases and the balance settled the month after.
- Salary is $15,000 per month
- Overheads of $20,000 per month (including
depreciation of $5,000 monthly) are settled monthly. Taxation of $3,500 has to be settled in February and the company will receive an insurance claim of $50,000 in March
Required:
- Prepare a cash collection summary from sales for the first quarter of 2021.
- Prepare a payment summary for purchases for the first quarter of 2021.
- Prepare a
cash budget for the first quarter of 2021. Clearly show the amounts for cash sales, credit sales, cash purchases, credit purchases and totals.
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