Understanding Cash Budgets for Businesses
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ScribdTranslationsUnderstanding Cash Budgets for Businesses
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ScribdTranslationsCASH BUDGET
The Cash Budget, also known as 'cash flow' does not
should not be confused with the Cash Flow or the Cash Flow.
Cash Flow It refers to the future flows generated by
a project
which are used to determine the feasibility or
no del
same, measured by the IRR, NPV, Period of
Recovery
and the Profitability Index.
Cash Flow Similar to a Cash Budget, but it
relates
with new investment projects.
Budget of
Cash Determine the cash needs of a
business in
march or already established.
Cash Budgets are generally made for periods
between 6 and 12 months. However, the company can determine
it is convenient to make budgets in the shorter term (1 - 3 months) or of
longer term (more than a year) although the latter are difficult
to measure by the variations that occur over the long term.
The Cash Budget faces the inflows of money
(cash inflows) with cash outflows (cash outflows)
cash.) and determines the existence or not of "surpluses" or "deficits".
Income > Expenses = Surplus
Income < Expenses = Deficit
Inflows = Outflows Equilibrium
Income and expenses exclusively measure inflows and outflows.
in cash,
Regardless of whether they are expenses, sales, or asset acquisition,
loans or of any other nature that involve 'cash'.
We need to make a distinction between 'expense' and 'outflows'.
For example:
On January 1, 2006, a delivery truck was purchased for $50,000,
to be depreciated using the straight-line method, with a useful life of 5
years and a redemption value of $10,000.
Depreciation
Annual Acquisition Value - Salvage Value
Useful Life
$50,000 - $10,000 = $8,000
5 years
The Cash Budget is affected by $50,000 at
moment to acquire the truck
The Income Statement is affected in its expenses, during
a period of 5 years, at the rate of $8,000 annually. These $8,000
they do not affect the annual Cash Budget.
Another Example:
The company specializes in selling bicycles and in October 2006,
sells 10 bicycles for a total of $3,000. The buyer is sold
the credit to be paid in 6 equal monthly installments starting in November
from 2006.
The Income Statement is affected in October by sales.
for $3,000.
If we prepare annual cash budgets (in ranges of
monthly payments) we will affect the cash income for the
months from November to April for $500 each month.
$3,000 / 6 installments
A Cash Budget can be as simple or complicated,
depending on the size and business volume of the company.
As the word indicates 'budget', we assume the
behavior of certain variables that may or may not occur.
For example, we can budget in December that the
sales volume for the month of May of the following year will be
of $400,000. Whether it happens or not will depend on whether the conditions
analyzed whether or not they occur. Disturbances occur on Ave. Central in that
Yes, and our warehouse is located on that avenue.
we can predict disturbances in May in December).
Another example, in June we budgeted the salaries for the
last semester of the year. Pressures from labor unions,
The government decrees a salary increase in August.
immediate. Our budget for the coming months is
will be affected.
Let's prepare a simple Cash Budget.
Case: Technology, Inc.
The company Tecnología, S.A. is exclusively dedicated to sales.
wholesale of three types of computers and wants you to
prepare your Cash Budget for the semester January / June
2007.
The company has three (3) types of computers for sale:
Simple Computer
Regular Computer
Sophisticated Computer
The suggested retail prices for the January/June semester are:
Simple Computer $ 600 unit
Regular Computer $800 unit
Sophisticated Computer $ 1,000 unit
Sales Volumes (estimated / in units)
January February March April May
June
Simple350 370 390 280 420
500
Regular210 240 260 200 310
320
Sofisticada90 95 110 100 120
130
Sales are in two payments: 50% in cash and 50% in 30 days.
experience, the payment delays are insignificant). Sales
Totals for the month of December were:
Simple $180,000
Regular $ 150,000
Sophisticated $80,000
The Technology suppliers, S.A. are Mexican and the cost of
sales are 70% of the selling price. These suppliers are
immediate payment.
Operating / Administration Expenses (monthly)
Form $40,000
Prestaciones Laborales 35% de la planilla
Rental $5,000
Light $ 1,000
Communications $ 2,500
Advertising $ 4,000
Bank interests $ 3,500
Office Supplies $ 900
Combustible $1,000
Others $ 2,000
It is estimated that these expenses will increase by 20% starting
of the month of April.
Additional information:
In March, the taxes incurred in the year 2006 will be paid.
for an amount of $25,000
In February, he plans to buy a delivery truck for $
20,000, the
50% will be paid in cash and 50% in September.
In March, a batch of obsolete computers will be sold.
for a
Value of $8,000 in cash.
In April, declared dividends on profits will be paid.
from last year for $30,000.