ASSIGNMENT -2

ON
COST AND MANAGEMENT ACCOUNTING
OF
CASH BUDGET FOR THE COMING QUARTER OF THE
FINANCIAL YEAR

SUBMITTED BY
NAME REGD. NUMBER SIGNATURE
Babloo Nayak MBA/19-21/04
Lumguang Mei Rongmei MBA/19-21/16
Rajesh Kanta Rout MBA/19-21/25
Swagatika Dash MBA/19-21/42
Swarnalata Behera MBA/19-21/43
Kritika Jalan MBA/19-21/51

GUIDED BY: Prof. (Dr.) PADMANAVA MOHAPATRA

 INTRODUCTION

ABOUT BUDGET
A budget is an estimation of revenue and expenses over a specified future
period of time and is usually compiled and re-evaluated on a periodic basis.
Budgets can be made for a person, a family, a group of people, a business, a
government, a country, a multinational organization or just about anything
else that makes and spends money. At companies and organizations, a budget
is an internal tool used by management and is often not required for reporting
by external parties.

TYPES OF BUDGET

Operating Budgets

The long-range operational goals, strategies and action plans of a small

business are monetized and presented in operating budgets, such as the sales,
raw material inventory and production budgets. The operating budgets are
created during an annual budgeting cycle that begins with a review of a
company's strategy, which may include the development of new products or
the introduction of products to new markets.

Sales Budget

The sales revenue documented in the sales budget establishes the maximum
dollars available to cover the costs of producing and selling the company’s
product or service and yield a profit. The three primary elements of the sales
budget are the total number of units to be sold during a budget period, the
per-unit sales price and the total sales revenue. 

Capital Expenditures Budget

A small business remains a going concern due in part to its ability to quickly
adjust its strategy and related financial plan in response to changing
environmental conditions. For example, a business might hire additional
salespeople when a new product is introduced, or a company might decrease
production to accommodate a decline in product sales.

Cash Budget

The business objectives specified in the operating budgets and the capital
budget are financed with dollars that are forecast and controlled using a cash
budget. The small-business owner relies on a cash budget to ensure that cash
is on hand to meet current financial obligations. However, the budget also
identifies excess cash that can be invested to better meet future budget
requirements.

Financial Budget

A financial budget in budgeting means predicting the income and expenses of

the business on a long-term and short-term basis. Accurate projections of cash
flow help the business achieve its targets in the right way.

WHY BUDGET IS IMPORTANT

Budgeting allows you to create a spending plan for your money, it ensures that
you will always have enough money for the things you need and the things
that are important to you.

Budget is a quantitative plan used as a tool for deciding which activities will be
chosen for a future time period. In a business, the budgeting for operations will
include the following: preparing estimates of future sales, preparing estimates
of future cash collections and disbursements, whereas the budgetary control is
a technique whereby actual results are compared with budgets. Any
differences (variances) are made the responsibility of key individuals who can
either exercise control action or revise the original budgets. It this way,
budgetary control is the establishment of budgets relating to the
responsibilities of executives to the requirements of a policy and the
continuous comparison of actual with budgeted results.

There is a great need for defining a clear line of authority and responsibility in
business organizations, so that the business goals and objectives may be
attained accordingly. It is through the effective budgeting system, the
authorities and responsibilities are established at different levels in a way as
needed to achieve the predetermined goals and objectives successfully.

EXAMPLE OF CASH BUDGET

The directors of Kingston & Co. were concerned about the company’s cash
flow. They requested their accountant to prepare a cash budget for the four
months ending 30 April 2016.
(i) The following sales figures are for the months of November 2018 to June
2019. The figures from January 2019 onward are estimated:

ACTUAL SALES RUPEES

November2018 60,000

December 2018 64,000

FORECAST SALES
January 2019 65,000

February 2019 70,000

March 2019 72500

April 2019 76,250

May 2019 80,000

June 2019 78,750

Half the sales are normally paid for in the month in which they occur and the
customers are rewarded with a 5% cash discount. The remaining sales are paid
for net in the month following the sale.

(ii) Goods are sold at a mark-up of 25% on the goods purchased one month
before sale. Half of the purchases are paid for in the month of purchase and a
4% prompt settlement discount is received. The remainder is paid in full in the
following month.
(iii) Wages of Rs 12000 per month are paid in the month in which they are
earned. It is expected that the wages will be increased by 10% from 1 March
2019.

(iv) Rent will cost Rs 60000 per annum payable three monthly in advance in
January, April, July and December each year.

(v) The directors have arranged a bank loan of Rs 60000 which would be
credited to company’s current account in February 2019.

(vi) The half-yearly interest on 200000, 8% debentures of Re 1 each is due to

be paid on 15 January 2016.

(vii) The ordinary dividend of Rs 12000 for the year 2015 will be paid in March
2019.

(viii) The bank balance at 31 December 2018 is Rs 12000.

Required:

Prepare a cash budget for the four months ended 30 April 2019. Give your
answers to the nearest Rupees (₹).
Solution:
Cash Budget
For the four months ending 30 April 2019 
JANUARY FEBRUAR MARCH APRIL
RECIEPTS Y
Sales (current month sales*50%*95% 30875 33250 34438 36219

(last month sales * 50%) 32000 32500 35000 36250

Bank loan _ 60,000 _ _

Total receipts 62875 125750 69438 72469

----------- ------------ ---------- ---------
Purchases (current month 26880 27840 29280 30720
purchases*50%*96%)

(last month purchases*50%) 26000 28000 29000 30500

Direct wages 12000 12000 13200 13200

Rent (60000*1/4) 15000 _______ ______ 15000

Debentures Interest 8000 _______ ______ _____

(2,00,000*8%*6/12)
Other dividends ______ 12000 ______ _____

Net payments 87880 67840 83480 89420

______ ______ ______ ______
Net receipts (payments) (25005) 57910 (14042) (16951)

CONCLUSION

Cash flow budgets are important and necessary for companies to see where
their finances are gains and losses. This can help the company by their utilizing
the budgets to find any potential problems that can be fixed sooner rather
than later.