Cash Budgeting for Merchandising Firms: Preparation and GST Considerations, Study Guides, Projects, Research of Accounting

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Week 4 – Chapter 6

CASH BUDGETS

FNSACC503A

Manage Budgets and Forecasts

MASTER BUDGETS

(chapter 1 : budgeting fundamentals)

Budget income statement

MERCHANDISING

PROFESSIONAL SERVICES*

Sales

Fees income

Sales

Purchases >>

COGS

Professional and supportlabour costs e.g. dentist + dentalassistant

• direct labour>>

COGS

Marketing expenses

Marketing expenses

Admin. expenses

Admin. expenses

Admin. expenses

Financial expenses

Financial expenses

Cash budget

Capital expenditure budget

Budgeted balance sheet

• sells expertise and knowledge

MANUFACTURING

Budget income statement

Production + Ending Inventories* direct materials (usage + purchases)* factory overhead Marketing expensesFinancial expenses

Overview

Is a cash budget and a budgeted cash flowstatement the same thing?

What does a cash budget provide us with anestimate of?

What does a cash budget look like?

How to approach a question in the exam whichasks you to prepare a cash budget.

The GST and cash budgets

Cash budgets - OVERVIEW

Some examples

Maintaining a desired cash balance

1. Is a cash budget and a budgeted

cash flow statement the same thing?

No.

What is the difference then?

A budgeted cash flow statement is the estimated cash

flows for a future period presented in the specificformat required by AASB107 (i.e. the accountingstandard on Cash Flow Statements). A cash budget shows the estimated cash receipts, cash

payments and opening & closing cash balances for aspecific period.

3. What does a cash budget

look like (FORMAT)?

Before moving on to the next slide, please refer to:

WEEK 4_FNSACC503A_Budgeting_LESSON

4_CASH BUDGETS_Format

4. How to prepare a cash budget

STEP 1:

Jot down the

FORMAT

of your cash budget.

It will help if you scan the question for clues onspecific items that will appear in the budget. STEP 2:

Work out both the

AMOUNT

TIMING

of

each cash receipt and payment (this step includespreparing a schedule of collections from AR /schedule of payments to AP if operating on credit). STEP 3: POPULATE

your budget with

the information you worked out in‘step 2’.

5. The GST and CASH BUDGETS

Before moving on to the next slide, please refer to:

WEEK 4_FNSACC503A_Budgeting_LESSON

4_CASH BUDGETS_GST Overview

Some GST basics…

Taxable supply

= good or service subject to GST

(i.e. not GST-free or input taxed)

e.g. books, computers, hot take-away meals.GST-free supply

= good or service not subject to GST, but

registered sellers can claim credits for GST paid oninputs

e.g. exports, education, child careInput taxed supply

= good or service not subject to GST

and the seller (whether registered or not) cannot claimcredits for GST paid on inputs

e.g. residential rents

6. Cash budgets - OVERVIEW^ There are four (4) scenarios specific to cashbudgeting:1.

The firm operates on a

cash basis

The firm operates on a

credit basis

The firm accounts for GST on a

cash basis

• GST adjustments

The firm accounts for GST on an

accrual basis

• GST adjustments

6. Cash budgets - OVERVIEW

Before moving on to the next slide, please refer to:

WEEK 4_FNSACC503A_Budgeting_LESSON

4_CASH BUDGETS_Overview

Then refer to:

WEEK 4_FNSACC503A_Budgeting_LESSON

4_CASH BUDGETS_Four (4) Scenarios

Working out cash collection from debtors

with discount allowed and bad debts

Schedule of collections from debtors for the quarter ending 30 September

Month cash collected

Sales ($)

July

August

Sept

Total

Month of sale

TOTAL

CASH (30%)

CREDIT (70%)

$^

$^

$^

$

May

57,

17,

39,

7,

7,

June

63,

18,

44,

22,

8,

30,

July

72,

21,

50,

11,

25,

10,

46,

August

51,

15,

35,

8,

17,

25,

September

36,

10,

25,

5,

5,

Total collections

41,

42,

33,

117,

INFORMATION GIVEN: * 30% of sales are for cash; the remainder are on credit.* AR repayments as follows:M=25% (DIS.=10%); M+1 = 50%; M+2 = 20%* Bad debts estimated at 5%.

-^

In the table going ACROSS you have the period beingbudgeted for i.e. the BUDGETED PERIOD.

-^

In the table going DOWN you have the MONTH OFSALE.

-^

Tip:

Work DOWN and then ACROSS. For example, work

Working out cash collection from debtors out cash collections for MAY during the months of JULY,AUGUST AND SEPTEMBER before working out cashcollections for JUNE.

with discount allowed and bad debts

e.g. Collections for JULY (workings)

JULY: Total receivable: $50,400 x 25% = $12,600Less DISCOUNT ALLOWED: $12,600 x 10% = $1,260 = $11,340AUGUST: Total receivable: $50,400 x 50% (NO DISCOUNT) = $25,200SEPTEMBER: Total receivable: $50,400 x 20% (NO DISCOUNT) = $10,

Before moving on to the next slide, please refer to:

WEEK 4_FNSACC503A_Budgeting_LESSON 4_CASH BUDGETS_Schedule of Collection from

Debtors (THE COMPLETE PICTURE)

Working out cash collection from debtors

with discount allowed and bad debts