CASH BUDGET
1. WHAT IS CASH BUDGET?
• It is an expected cash inflows (receipts) and outflows (payments) for a business
or individual for a specific period of time in the future.
2. What is projected Income Statement?
• It is an estimation of expected income and expenses for a specified future period
of time (usually in months)
3. Cash budget deals only with cash transactions which are cash receipts and cash
payments.
▪ This means that only transactions that involve cash are included in the cash budget
▪ Therefore the following non-cash items are excluded from cash budget :
(i) Depreciation
(ii) Bad debts
(iii) Discount allowed
(iv) Discount received
(v) Profit/loss on sale (disposal) of fixed assets
(vi) Merchandise/ goods taken by owner for personal use (drawings of trading
stock)
4. CASH BUDGET CALCULATIONS
4.1. Cash Surplus = Cash Receipts are more than Cash Payments
4.2. Cash Deficit/ Shortfall = Cash Payments are more than Cash Receipts
4.3. Cash (bank) balance at the end (closing bank balance) = Cash surplus or (deficit)
plus or minus Bank balance at the beginning.
4.4. Calculate cash sales if given total sales and cash sales percentage
- Cash sales = Total Sales amount x percentage of cash sales
4.5. Calculate credit sales if given total sales and credit sales percentage
- Credit sales = Total sales x percentage of credit sales
N.B. IF NOT GIVEN THE CREDIT SALES PERCENTAGE, BUT ONLY GIVEN CASH SALES
PERCENTAGE, YOU CAN CALCULATE CREDIT SALES PERCENTAGE BY TAKING
100% – Percentage of cash sales
4.6. Calculate Loan Amount (balance)
Loan Amount (L) = Interest (loan) x 100 x 12
Rate (e.g. 11)
1
4.7. How to calculate Loan Repayment amount ( Loan Installment)
Loan Repayment = (current interest on loan – Previous interest on loan) x 100 x 12
Rate (interest rate on loan)
4.8. Calculate Fixed Deposit Amount
Fixed deposit Amount = Interest of fixed deposit x 100 x 12
Rate (e.g. 8)
4.9. Calculate interest on loan or fixed deposit
Interest = Loan amount or (fixed deposit) x rate x months
100 12
4.10. Calculate Payment to Creditors / Amount to be paid to the suppliers
• First read the transaction to find out how long the creditors will be paid. (e.g. 60
days)
• Second check if whether you have been given the Purchases amount
- If given the Total Purchases amount, you will have to calculate the credit purchases
by taking the amount of Total purchases multiply by credit purchases percentage
• Thirdly, if not given the Purchases, you need to check whether there is Cost of
Sales (because Purchases and Cost of Sales are the same thing)
- Payment to creditors can be calculated using Cost of Sales amount
• Again, if Cost of Sales is not given but you have been given Total sales, this
means that you must first calculate Cost of Sales by using the amount of Total
Sales with the Mark up.
• How to Calculate Cost of Sales
Cost of Sales = Sales Amount x 100
100 + mark up
- After getting the Cost of Sales Amount, you will then calculate payment to creditors
by taking Cost of Sales amount multiply by credit purchases percentage.
4.11. Calculate percentage increase (change) if given :
(i) Budgeted and Actual amount
Percentage increase = (Actual Amount – Budgeted Amount) x 100
Budgeted Amount 1
(ii) If given TWO different months (e.g. August and September)
Percentage increase = (Current month amount – Previous month amount) x 100
Previous month amount 1
2
4.12. How to calculate amount including the percentage increase (e.g. The rent for
August was R2000 and is expected to increase by 5% on September).
• Calculate the Rent amount for September
Take the previous amount x 105
100
(e.g. R2000 x 105/100 = R2100)
5. Analysis of Cash Budget or Projected Income Statement
N.B. You are going to compare the Budgeted (expected) figure with the Actual figure
NOVEMBER BUDGET NOVEMBER ACTUAL
Total Sales R 610 000 672 000
Cash sales R 160 000 70 000
Credit sales R 450 000 602 000
Collections from debtors R 425 000 240 000
Motor expenses (e.g. fuel, R 20 000 38 000
maintenance cost)
Advertising R 24 000 13 000
Water and electricity R 28 000 40 000
5.1. How to answer the above types of questions in the exam
5.1.1 Start by comparing the Actual figure against the budgeted figure and give the
difference (Make sure that you quote figures in ALL your answers)
(a) SALES
• Actual cash sales are less than budgeted by R90 000
• Actual credit sales are more than budgeted by R152 000
N.B. Customers are buying more on credit than on cash (Advice: Encourage customers to buy
on cash by offering them greater trade discounts)
(b) Collection from debtors (cash received from debtors/ customers)
• Actual debtors collections are less than budgeted by R185 000, or
• Actual debtors collection was 43.5% less than what was budgeted
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(c) Motor Expenses
• Actual motor expenses are more than budgeted by R18 000, or
• Motor expenses were 90% more than budgeted
• This means that there is no effective control over motor expenses (too much
overspending)
(d) Advertising (N.B. Make sure that whenever you comment on advertising, you also check
your sales figures because advertising goes hand in hand with sales).
• Actual advertising is less than budgeted by R11 000 and this has a negative impact on
cash sales as cash sales has decreases by R90 000
• However, advertising was effective as the actual total sales are more than budgeted by
R62 000, or you can say
• Actual amount used for advertising was 1.9% of total sales less than the budgeted
amount of 3.9% of total sales.
IMPORTANT THINGS TO KNOW IN THE CASH BUDGET
A. How to calculate Debtors Collection Schedule
B. How to Calculate Creditors Payment Schedule
N.B. ALL IN ALL, we budget in everything, so even Cash budget is broad, it has a lot of
information. All you need to do is to read the information carefully and analyze what you
have been given. Answers for Cash budget are found from the DATA or INFORMATION that
you have been provided with.
PLEASE DON’T BE LAZY TO LOOK FOR INFORMATION BECAUSE ANSWERS ARE
THERE.
Compiled by Netshidzivhe RN
Deputy Chief Education Specialist – Commerce
Vhembe West District