Budget Preparation

If we are preparing a cash budget then we will not receive any cash from irrecoverable debts. If cash is received within 30 days then it is received in the same month in which the invoice is sent.

So if I take a scenario where the invoice is at the end of the month of october Would this then be recorded as a cash sale in October or November then sir??

With a cash sale the money is received immediately the sale is made. So if there is a cash sale at any time in October then the cash is received in October.

All sales are on credit. More favourable credit terms are offered to larger customers (class A) than to smaller customers (class B). All sales are invoiced at the end of the month in which the sale occurs. Class A customers will be given credit terms requiring payment within 60 days of invoicing, while class B customers will be required to pay within 30 days of invoicing. Since it is recognised, however, that not all customers comply with the credit terms they are allowed, receipts from customers have prudently been estimated as follows: Customer type Class A Class B Within 30 days 60% 31 to 60 days 50% 25% 61 to 90 days 30% 10% 91 to 120 days 15% Bad debts 5% 5% The above table shows that customers are expected either to pay within 60 days of the end of the credit period, or not at all. Bad debts will therefore be written off 60 days after the end of the credit period. Budgeted credit sales for each class of customer in the first 4 months of trading are as follows: Customer type Assume all months are of 30 days. Required October November December January $'000 $'000 $'000 $'000 class A100 150 200 300 class B 60 80 40 50 (a) Prepare a statement showing the budgeted cash to be received by HM Co from customers in each of the three months of November 20X2, December 20X2 and January 20X3, based upon the prudently estimated receipts from customers. Sir why is october's credit sales of class B (within 30 days) recorded in november then sir???

Because people invoiced in October will pay 30 days later so will pay in November.

Okay sir i understood this concept but I just have a doubt with discounts also Will discounts be included in the cashflow or would that be ignored just like bad debts?

The cash received is after subtracting any discount.

Oh thank you sir I understood the concept that interest and depreciation are not recorded because there aren't actual cash outflows But I'm wondering why bad debts are not recorded I understand the fact that bad debts are not recorded because they also work in the same fashion as interest but when you look at bad debts closely these are actual sales being lost Sir is bad debts not recorded because it has something to do with trade recievables(Trade recievables don't actually have any cashflows)

They are indeed losses and will affect the profit (but because the debtor has not paid, not because we have not made the sale). However you are forecasting the cash that will be received, and if a debt ends up being irrecoverable then the cash is not being received.

Sir I still have a question in regard with this question Just to be clear if the question does not mention the word invoice and says that the company will pay in 30 days would that mean within the month or the next month Also for questions that specify that the invoice is payed within 30 days It's definitely next month ryt sir?

It means they pay in the next month :-)