PROBLEM 1: Felix Company wants to forecast its cash budget for the next 3 months. *... (2024)

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In: Accounting

PROBLEM 1:
FelixCompany wants to forecast its cash budget for the next 3months.

* Estimatedsales revenues are:

Month	Revenue
January	$ 200,000
February	$ 150,000
March	$ 300,000
April	$ 400,000

All sales are on credit and are estimated to be paid asfollows:
Month of Sale	60%
Month after sale	40%
	100%

* Cost ofgoods sold as a percentage of sales is		75%

* Paymentsfor merchandise sold are made in the month following the monthsale.

* Operatingexpenses total $50,000 per month and are to be paid in the monththey are incurred.

* The cashbalance estimated on February 1 is $100,000.

QUESTION: Prepare monthly cash budgetsfor February, March and April in Excel.

Solutions

Expert Solution

Cash Budget
	Feb	Mar	April
Cash Balance Beginning	100000	70000	147500
Total Cash receipts	170000	240000	360000
Cash Available	270000	310000	507500
Total Disbursem*nts	200000	162500	275000
Cash Balance Ending	70000	147500	232500
Workings:
Cash Receipts	Feb	Mar	April
Jan (200000*40%)	80000
Feb (150000*60%,40%)	90000	60000
Mar (300000*60%,40%)		180000	120000
April (400000*60%)			240000
Total	170000	240000	360000

*Cash Disbursemnts**	Feb	Mar	April
COGS	150000 (200000*75%)	112500 (150000*75%)	225000 (300000*75%)
Operating Expenses	50000	50000	50000
Total	200000	162500	275000

** Cost of goods sold (COGS) payment for the month of jan ismade in Feb and payment for the month of Feb is made in March

Above Cash budget with Formulas in excel

	A	B	C	D
1	Cash Budget
2		Feb	Mar	April
3	Cash Balance Beginning	100000	=B7	=C7
4	Total Cash receipts	=B14	=C14	=D14
5	Cash Available	=B3+B4	=C3+C4	=D3+D4
6	Total Disbursem*nts	=B19	=C19	=D19
7	Cash Balance Ending	=B5-B6	=C5-C6	=D5-D6
8
9	Cash Receipts	Feb	Mar	April
10	Jan (200000*40%)	=200000*40%
11	Feb (150000*60%,40%)	=150000*60%	=150000*40%
12	Mar (300000*60%,40%)		=300000*60%	=300000*40%
13	April (400000*60%)			=400000*60%
14		=SUM(B10:B13)	=SUM(C10:C13)	=SUM(D10:D13)
15
16	Cash Disbursem*nts	Feb	Mar	April
17	COGS	=200000*75%	=150000*75%	=300000*75%
18	Operating Expenses	50000	50000	50000
19	Total	=B17+B18	=C17+C18	=D17+D18

ekkarill92 answered 1 year ago

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PROBLEM 1:

Felix
Company wants to forecast its cash budget for the next 3
months.

*... (2024)

FAQs

What is the main purpose of a cash budget is to forecast the company's? ›

The primary objective of a cash budget is to forecast future cash balances in order to identify potential deficits and surpluses. Based on the forecasted balances, finance professionals work to create plans that manage those situations effectively.

What is a cash forecast budget? ›

Cash flow forecasting is the process of estimating the amount of money that will flow into and out of a business over a specific period of time. It is a key component of cash budgeting, which is the process of planning and managing cash flow to ensure that a business has enough cash to meet its financial obligations.

Get More Info Here ›

How to solve for cash budget? ›

Six steps to build a cash budget

Create a template. Build a simple spreadsheet to help calculate your cash budget using the steps below. ...
Establish your budget timeline. ...
Input your opening cash balance. ...
List your cash inflows and outflows. ...
Estimate the cash inflow or outflow. ...
Calculate the budget.

May 15, 2024

Why would a firm want to develop a cash budget since it is only a projection of cash inflows and outflows over some future period of time? ›

A company will use a cash budget to determine whether it has sufficient cash to continue operating over the given time frame. A cash budget will also provide a company with insight into its cash needs and any surpluses, which help it determine if the business is using cash effectively.

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What is the reason for cash budget? ›

Preparing a cash budget has a number of benefits: It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraft close overdraftAn agreement with the bank to overspend on an account. . It can help to regulate expenses.

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What is the primary purpose of a company preparing a cash budget? ›

The primary purpose of a cash budget is to plan and control cash inflows and outflows.

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What is the purpose of cash forecasting? ›

Cash flow forecasting, also known as cash forecasting, estimates the expected flow of cash coming in and out of your business, across all areas, over a given period of time. A short-term cash forecast may cover the next 30 days and can be used to identify any funding needs or excess cash in the immediate term.

How do you forecast a budget? ›

Financial Forecasting in the Budget Preparation Process

Define Assumptions. The first step in the forecasting process is to define the fundamental issues impacting the forecast. ...
Gather Information. ...
Preliminary/Exploratory Analysis. ...
Select Methods. ...
Implement Methods. ...
Use Forecasts.

How do you do a cash forecast? ›

How to forecast your cash flow

Forecast your income or sales. First, decide on a period that you want to forecast. ...
Estimate cash inflows. ...
Estimate cash outflows and expenses. ...
Compile the estimates into your cash flow forecast. ...
Review your estimated cash flows against the actual.

May 16, 2024

What is an example of a cash budget? ›

Here's an example of a cash budget a company might make:A company assesses its finances to determine how much income it will have in the next three months from its outstanding accounts receivable , cash and asset sales that will occur and close within the three months.

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What is the budget formula? ›

Allow up to 50% of your income for needs, including debt minimums. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment beyond minimums. Track and manage your budget through regular check-ins.

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What is the method of preparing a cash budget? ›

Receipts and Payments Method

Under this method, cash budget is prepared in columnar basis. There are two parts. First part is receipts and second part are payments. The total receipts are added with opening Page 2 balance of cash and deducted the payments to get closing balance of cash.

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Why is it important to forecast the cash needs of a business? ›

Accurate forecasting gives businesses the ability to understand their cash position at any given moment, enabling them to anticipate and plan for any potential shortfalls. Businesses can also use the cash flow forecasting to identify opportunities to reduce costs and maximize returns on investments.

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What are the key considerations while forecasting a cash flow? ›

Your cash inflows for the forecasting period: Anticipated sales receipts from within the forecasting period are usually the primary source of data for your cash inflows. Other types of cash inflows to consider including are intercompany funding, dividend income, proceeds of divestments, and inflows from third parties.

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How to prepare budget cash flow? ›

Preparing a cash flow budget involves four steps:

Preparing a sales forecast.
Projecting your anticipated cash inflows.
Projecting your anticipated cash outflows.
Putting the projections together to come up with your cash flow bottom line.

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What is the purpose of the budget forecast? ›

A budget forecast is a projection of the budget. This means it's a key component of variance analysis or any P&L budget vs actuals model. The budget forecast references the budget instead of historical values, which is especially helpful for organizations with inconsistent historical performance.

What is the main purpose of a cash flow forecast? ›

Cash flow forecasting involves estimating your future sales and expenses. A cash flow forecast is a vital tool for your business because it will tell you if you'll have enough cash to run the business or expand it. It will also show you when more cash is going out of the business than in.

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What is the purpose of the cash flow budget? ›

The primary purpose of using a cash flow budget is to predict your business's ability to take in more cash than it pays out. This will give you some indication of your business's ability to create the resources necessary for expansion, or its ability to support you, the business owner.

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What is the primary purpose of a cash budget quizlet? ›

The primary purpose of the cash budget is to allow the firm to anticipate the need for outside funding or excess funds to be invested. * the most comprehensive means of financial forecasting.

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