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KG is the management accountant for NKGOOK Ltd. KG is planning on how to finance the operations for the final quarter of the year. NKGOOK Ltd has a financial year ending on 30th June. The following data is available to aid the preparation of the cash budget for the last quarter of the financial year, i.e. April to June.
i. The actual sales for the third quarter were: January – GH¢400,000; February – GH¢480,000; and March – GH¢360,000.
ii. Forecasted sales for the April, May, and June are GH¢400,000, GH¢540,000, and GH¢600,000 respectively.
iii. 20 per cent of sales made in each month are for cash, and the remaining 80 per cent are on credit. It is the policy of the company to collect 20 per cent of credit sales in the month of sales, 50 per cent in the month following sales and 30 per cent in the second month following sales.
iv. The closing inventory of finished goods each month equals 40 per cent of the cost of sales for the next month. The cost of sales for each month is 75 per cent of the month’s sales. The company has the policy to pay for purchases in the month following purchases.
v. Other recurring monthly expenses include: Wages and salaries – GH¢40,000; Depreciation on property, plant and equipment – GH¢16,000; Utilities – GH¢4,000; and other Miscellaneous expenses – GH¢6,000.
vi. Property taxes of GH¢60,000 are due and payable on 15th March. Advertising fees of GH¢24,000 must be paid on 20th April.
vii. A lease of a new storage facility, with a monthly payment of GH¢20,000, is scheduled to begin on 2nd May.
viii. KG provides that the actual cash balance at the end of February was GH¢40,000 and inventory of finished products at hand at the end of February were valued at GH¢120,000.
YOU ARE REQUIRED TO: Prepare a cash budget for the three (3) months – March, April, and May – clearly showing your supporting schedules for the cash collection and any other workings. [12 marks]What is your question?
There is no point writing out a whole question expecting an answer.
You should have an answer in your textbook
1. Starting cash balance
Begin with starting cash balance as of April. This is the amount of cash they had on hand at the beginning of the budgeting period.2. Cash inflows
Project the cash inflows for each month (April, May, June).
* Cash Sales: Revenue received directly from sales.
* Collections from Accounts Receivable: Cash received from outstanding invoices.
* Other Income: Any other cash receipts like loans, interest income, or asset sales.3. Cash outflows
Estimate anticipated cash outflows for each month. This includes
* Operating Expenses: Regular expenses like rent, utilities, and payroll.
* Purchases: Payments for inventory or materials.
* Loan Repayments: Principal and interest payments on outstanding loans.
* Capital Expenditures: Payments for new equipment or other investments.
* Other Expenses: Any other expected cash payments.4. Net cash flow
Calculate the net cash flow for each month by subtracting total cash outflows from total cash inflows.5. Ending cash balance
Finally, the ending cash balance for each month by adding the net cash flow to the beginning cash balance. The ending balance for one month becomes the beginning balance for the next month.
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