INTRODUCTION

MEANING :
Cash is the money which a firm can use for payment immediately without any
Restriction. The term cash includes coins, currency and cheques held by the firm,
and balances in its bank current accounts. Generally, when a firm has excess cash,
it invests it in marketable securities. Cash also includes such near-cash assets
(cash equivalents) that can readily be converted into cash.

IMPORTANCE OF CASH :
Cash is the most important asset for the operations of the business. The business
Cycle is nothing without the cash cycle. Cash is the basic input needed to run the
Business; it is also the final output expected from selling the product manufactured
by the firm. The firm should keep sufficient cash, neither more nor less. Cash
shortage will disturb the firms manufacturing operation while excessive cash will
remain idle, without contributing anything towards the firms profitability.
Thus, a major function of the financial manager is cash management.

WHY ORGANISATIONS HOLD CASH

The need for holding cash arises from 3 main reasons (as first laid down by the
Economist Maynard Keynes) which are as follows.

1. Transaction Motive : A company is always entering into transactions with other

Entries. While credit purchases and sales do not result in an immediate inflow/
outflow of cash, other transactions cause immediate cash inflows and outflows.
So firms always keep a certain amount of cash to deal with routine transactions
where immediate cash payment is required.

2. Precautionary Motive : Contingencies and emergencies arise when least

expected. A sudden fire may break out, accidents may happen, employees may
go on strike, creditors may present bills earlier than expected or debtors may
make payments later than the due date.
The company has to be prepared to meet these contingencies to minimize its
losses. For this purpose companies generally maintain some additional amount in
the form of cash.

3. Speculative Motive : Firm also maintains cash balances in order to take

advantage of unexpected opportunities.

For example, there may be a sudden decrease in the price of raw materials
which is not expected to last long. These transactions are of purely speculative
nature for which the firms need cash.

CASH MANAGEMENT
1. Meaning : Cash Management means planning, organizing, directing and
controlling of cash. It involves efficient collection, disbursement and
cash.
2. Objectives : The objective of cash management is to balance the twin factors of
liquidity and profitability. The cash balance should be optimum neither too
much not too less.
3. Issues : Cash Management is concerned with the following issues
- How to estimate the cash-inflows and cash- outflows?
- How to manage the cash-inflows and cash- outflows?
- What is the optimum cash level?
- How to handle cash shortages?
- How to handle cash surpluses?
4. Aspects/Scope : Thus, Cash Management covers the following aspects:
(a) Estimating Collections and Payments: Cash budget should be prepared to
find out the projected cash inflows, cash outflows and the surplus or deficit
3

for each period of the planning period.

(b) Managing Collection and Payments : The flow of cash should be properly
managed. This involves management of cash collections and cash payments.
the cash inflows should be faster while, as far as possible, slowing down the
cash outflows.

(c) Keeping Optimum Cash Balance : The firm should decide about the
appropriate level of cash balances. The cost of excess cash and danger of cash
shortage should be balanced to determine the optimum level of cash in hand.
Cash Models help to fix optimum level of cash.
(d) Handling cash shortage : Long term cash deficit should be made up by
tapping Long term source of finances. Short term cash shortages should be
overcome by better cash flow management and tapping the short term source
of finance.

(e) Handling Cash Surplus : Long term surplus may be returned to the
Shareholders. Short term surplus cash should be properly invested to earn
Profits. The firm should decide about the division of such cash balance
between bank deposits, marketable securities and inter corporate lending.

CASH BUDGET

(1) Meaning : A cash budget is an estimate of the receipts and payment for each
month or other period forming part of the whole budget period. It is essential to
allow for the time-lag between certain transactions and the receipts or payments
of the concerned cash. The necessity, and consequently, the objective of the cash
budget is to ensure that sufficient cash is available for both the revenue and
capital expenditure, to indicate when additional finance is required and how
much, and to show any expected surplus funds which may be invested profitably
outside the business.

(2) Functions : Following are the important functions of cash budget :

(i) To ensure that the sufficient cash is available when required.
(ii) To reveal any expected shortage of cash, whether long-term or short-term.
(iii) To reveal any expected surplus of cash, whether long-term or short-term.
(iv) To preserve the liquidity.
(v) To reveal the seasonal requirements such as payment of Income Tax.
(vi) To assist in sound-investment policy.
(vii) To indicate the availability of cash discounts.
(viii) To indicate the availability of funds for replacement of assets, additions
to assets, expansion schemes, new schemes, modification of existing
plant etc.

(3) Receipts and Payment Method

(a) Meaning : Business concerns normally use the Receipts and Payments method
for preparing the Cash Budget which shows item-wise details of cash flows
and balance for any given period- week, month, quarter, etc. In this method all
the expected receipts and payments for budget period are considered. All the
cash inflow or out flow of all functional budgets including capital expenditure
budgets are considered. Accruals and adjustments in accounts will not affect
the cash flow budget. Anticipated cash inflow is added to the opening balance
of cash and cash payments are deducted from this to arrive at the closing
balance of cash.

The Cash Budget prepared on the basis of receipts and payments method offers
Following benefits :
(i) It provides a complete picture of all items of expected cash flows.
(ii) It is a sound tool of managing daily cash operations.

This method, however, suffers from the following limitations :

(i) Its reliability is reduced because of the uncertainty of cash forecasts.
For eg, Collections may be delayed or unanticipated demands may cause
large disbursements.
(ii) It fails to highlight the significant movements in the Working Capital items.

(b) Stages/ Steps :

(I) Forecasts of Cash Receipts
(i) Sources: The technique of forecasting cash receipts totally depends upon
the fact as to what extent the budgeting is followed in other areas of the
business activities. Generally speaking, the various sources from which
cash inflow is expected in a business concern are : (i) Opening Balance
of cash in hand and at Bank (ii) Cash Sales (iii) Credit Sales i.e,
collection from Debtors (iv) Collection from Bills Receivables
(v) Interest on Advance Proceeds from issue of Shares and Debentures.
(vi) Other Sources.
(ii) Amount: After determining the various sources, the quantum of the
Receipts should be estimated.
(a) Interest etc.: Estimating amount of interest is easy as the amount
is based on the contracted rate. Dividends can be estimated from
past receipt. Receipts from sale of assets/ investments can be
estimated from Investments/ Capital Budgets.
(b) Cash Sales : This is based on the sale Budget. In order to estimate
the cash inflow from cash sales, the total sales forecasts should be
divided between cash sales and credit sales on the basis of past
experience, the changes in general business trend etc. This ratio,
when applied to total sales forecasts for the period of cash budget,
will give the amount of cash coming into the business from cash
sales.
7

(c) Collections : In the case of credit sales, there is time lag between sale
and the cash collection. Thus, while forecasting cash receipts from
credit sales, the average collection period of the earlier period should
be taken into account. It would be more advantageous to find out the
collection period according to area and customer separately.
The collection from credit sales depends to a great extent upon the
nature of business and credit policy pursued by business concern.
The nature of business greatly affects the period of collection from
Debtors.
For example, A concern, which supplies goods to the Government,
can not make definite estimate as to when the bill would be collected.
Similarly, the period and amount of collection also depend on the
credit policy followed by the business concern.

(II) Forecasts of Cash Payments

(i) Items: Cash payments normally involves (i) Cash purchases,
(ii) Payments to Creditors and Suppliers, (iii) Payments against Bills
Payables, (iv) Payments to employees i.e, wages and salaries,
(v) Manufacturing, selling and distribution, administration expenses,
(vi) Repayments of Bank loans and special obligations such as bonus,
donations, advances to suppliers, (vii) Interest and dividend payments,
(viii) Capital expenditures for acquiring assets of enduring benefits,
(ix) Payments of Tax liability, etc., (x) Other expenses of periodic nature.
8

(ii) Amount:
(a) Functional Budgets: The amount likely to be spent on the above
each item is based on the functional budgets of the concerns.
(b) Purchases: The amount of cash purchases is ascertained by the policy
Of the concern regarding the purchases. It is the policy which
determines the ratio of cash purchases and credit purchases. The total
amount of purchases is taken from the purchase budget.
The estimates of the amounts needed for paying off creditors are
mainly dependent on the credit policy of the suppliers.
(c) Interest and Dividends: As far as interest and dividend payments are
concerned, the amount and the date of payment do not differ much
from period to period.
(d) Capital Expenditure: Payments on items of capital commitments
can be estimated by looking at the capital expenditure budget and
also at the agreement regarding the payment to the dealers.
(e) Revenue Expenses: As regards the payments for various expenses,
the time lag in respect of each item of expenditure should be
determined from the past experience.
The time-lag affects the amount of expenditures to be incurred in a
particular period.
For example, if the rent for the month of March is `800 and
time-lag in payment is one month then whole `800 will be paid in
April. If time-lag is month then of `800 = `400 will be paid
9

in April and balance `400 in the March itself.

In this way, amount of each item of expenditures for a month is
estimated.

EXIBIT 1 : CASH BUDGET

10

ABC Co. Ltd.

Particulars
(A)
(B)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

Jan.

Feb.

(`)

(`)

Mar
.
(`)

Apr.
(`)

May

Jun

.
(`)

e
(`)

July
(`)

Opening Cash Balance

Cash Receipts
Cash Sales
Collection from Debtors
Sale of Fixed Assets
Collection from B/R
Loan from Banks
Interest on Investments
Issue of Shares
Issue of Debentures

[Receipts (A) + (B)]

(C )
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

Cash Payments
Cash Purchases
Payment to Suppliers
B/P Payment
Expenses and Taxes
Payment of Dividend
Interest on Loans
Purchase of Fixed Assets
Re-Payment of Loans

Total Payments (C )
Closing Cash Balance
[(A) + (B) + (C )

Cash Budget (For the Period Ending ..)

Illustration: 1
From the following information prepare a cash budget for the six months ended

11

Aug
.
(`)

Sept.
(`)

30th June, 2015 of Indraneel Co. Ltd.

Month

Total Sales
(`)

Material
(`)

December13 22,000
16,000
January14
20,000
20,000
February14
22,000
14,000
March14
24,000
14,000
April14
26,000
12,000
May14
28,000
12,000
June14
30,000
16,000
Estimated Revenue and Expenditure

Wages

Production
Overheads

Selling

&

Dist.
Overheads

(`)

(`)

(`)

4,000
4,000
4,400
4,600
4,600
4,800
4,800

3,000
3,200
3,300
3,300
3,400
3,500
3,600

700
800
900
800
900
900
1,000

Cash balance on 1st January was ` 10,000. A new machine is to be installed at

30,000

on credit, to be repaid in two equal instalments in March 2014 and April

2014. Sales commission at 5% on total sales is to be paid within the month

following actual sales. `1,000 being the amount of second call may be received in
March, 2014. Share premium amounting to ` 2,000 is also obtainable with second
call. Period of credit allowed by suppliers is 1 month. Period of credit allowed to
customers is 1 month. Delay in payment of overheads is 1 month. Delay in payment
of wages is Half month. Assume cash sales to be 50% of total sales.
Particulars
(A) OPENING
(B) RECEIPTS
I.
Revenue
Sales (Cash)
Received
II.

Debtors
Capital
Call

from

Jan.
(`)

Feb.
(`)

Mar.
(`)

Apr.
(`)
(14,800

May.
(`)
(28,700

10,000

6,200

(2,000)

10,000

11,000

11,000

10,000

12,000

13,000

14,000

15,000

11,000

12,000

13,000

14,000

1,000
12

June
(`)
(24,000)

E.

Premium
TOTAL
PAYMENTS
Revenue
Paid to Creditors
Expenses
- Wages
- Commission
- Production OH
- S&D OH
Capital
Machine
TOTAL

F.

CLOSING

C.
D.
I.

II.

31,000

27,200

2,000
24,000

16,000

20,000

14,000

14,000

12,000

12,000

4,000
1,100
3,000
700

4,200
1,000
3,200
800

4,500
1,100
3,300
900

4,600
1,200
3,300
800

4,700
1,300
3,400
900

4,800
1,400
3,500
900

24,800

29,200
2,000

15,000
38,900
(28,700

22,300
(24,000

22,600

6,200

15,000
38,800
(14,800
)

10,200

(1,700)

5,000

(17,600)

Solution :

Note : Negative (Credit) Balances indicate the amount of Bank Facilities required.
Working Notes :

a.
b.
c.
a.
b.
a.
b.
c.
d.
a.
b.

M. No. (M)
Month
Sales
Sales (Cash) (M/2)
Recd. From Debtors (1)
[(M-1)/ 2]
Materials
Paid to Creditors (M-1)
Wages Due
Wages Paid (1)[(M-1)/2]
Wages Paid (2) (M/2)
Wages Paid (Total)
Sales Eligible for Comm.
Sales Commission Paid

1
2
Dec.
Jan.
22,000 20,000
10,000

3
Feb.
22,000
11,000

4
Mar.
24,000
12,000

5
Apr.
26,000
13,000

6
May
28,000
14,000

7
June
30,000
15,000

11,000
16,000 20,000
16,000
4,000 4,000
2,000
2,000
4,000
22,000 20,000

10,000
14,000
20,000
4,400
2,000
2,200
4,200
22,000

11,000
14,000
14,000
4,600
2,200
2,300
4,500
24,000

12,000
12,000
14,000
4,600
2,300
2,300
4,600
26,000

13,000
12,000
12,000
4,800
2,300
2,400
4,700
28,000

14,000
16,000
12,000
4,800
2,400
2,400
4,800
30,000

13

a.
b.
a.
b.

[5% x (M 1)]
Production OH Due
Production OH Paid(M-1)
S & D OH Due
S & D OH Paid (M-1)

3,000
700

1,100
3,200
3,000
800
700

1,000
3,300
3,200
900
800

1,100
3,300
3,300
800
900

1,200
3,400
3,300
900
800

1,300
3,500
3,400
900
900

1,400
3,600
3,500
1,000
900

Illustration : 2
From the following information and the assumption that the balance in hand on
1st January is Rs. 72,500. Prepare Cash budget.
Selling
Month

January
Februar
y
March
April
May
June

Sales

Material Wages

Distribution

(`)
72,000

(`)
25,000

(`)
10,000

Cost
(`)
4,000

97,000
86,000
88,600
1,02,500
1,08,700

31,000
25,500
30,600
37,000
38,800

12,100
10,600
25,000
22,000
23,000

5,000
5,500
6,700
8,500
9,000

Production

Administratio

Cost

n Cost

(`)
6,000

(`)
1,500

6,300
6,000
6,500
8,000
8,200

1,700
2,000
2,200
2,500
2,500

Assume that 50% are Cash Sales. Assets are to be acquired in the month of February
and April. Therefore provision should be made for the payment of 40,000 and 25,000
for the same.
An application has been made to the Bank for the grant of loan of 30,000 and it is
hoped that it will be received in the month of May.

14

It is anticipated that a dividend of 50,000 will be paid in June. Debtors are allowed
1months credit. Sales Commission @2% on Cash Sales and 5% on cash collection
from Debtors is to be paid.
Creditors (for Goods or Overheads) grant one month credit.

Solution:
Cash Budget from January to June
Particulars
(A

OPENING
)
(B) RECEIPTS
Sales (Cash)
Received

from

Debtors
Bank Loan
C.

TOTAL

D.

PAYMENTS
Paid to Creditors
Expenses
- Wages
- Commission
- Production OH
- S&D OH
- Administration OH

Jan.
(`)

Feb.
(`)

Mar.
(`)

Apr.
(`)
1,24,52

72,500

97,780

90,910

36,000

48,500

43,000

44,300

51,250

54,350

--

36,000

48,500

43,000

44,300

51,250

May.
(`)

June
(`)

1,19,789 1,74,099

30,000
1,08,500

10,000
720

1,82,28

1,82,410

2,11,825 2,45,339 2,79,699

25,000

31,000

25,500

30,600

37,000

12,100
970
6,000
4,000
1,500

10,600
860
6,300
5,000
1,700

25,000
886
6,000
5,500
2,000

22,000
1,025
6,500
6,700
2,200

23,000
1,087
8,000
8,500
2,500

15

- Cash Discount
Machine

1,800
40,000

2,425

E.

TOTAL

10,720

91,370

57,885

F.

CLOSING

97,780

90,910

1,24,525

M. No. (M)
Month

1
Jan

a.

Sales

72,000

b.

Sales (Cash) (M/2)

36,000

c.

Recd. From Debtors

2
Feb
97,00
0
48,50
0
36,00
0

2,150
25,000
92,036
1,19,78
9

2,215

2,563

71,240

35,000
1,17,650

1,74,099 1,62,09

3
Mar

4
Apr

5
May
1,02,50

6
June
1,08,70

86,000

88,600

43,000

44,300 51,250

54,350

48,500

43,000 44,300

51,250

43,000

44,300 51,250

54,350

860

886

1,087

48,500

43,000 44,300

51,250

2,425

2,150

2,563

[(M-1)/ 2]
a.
b.
a.

Sales Eligible for Comm.

Sales Comm. Paid [2% x
(M)]

36,000
720

48,50
0
970
36,00

Recd. From Debtors

0
1,800

b. Cash Discount [5% x (M)]

Working Notes :

1,025

2,215

Notes :
(1) It is assumed that wages are paid at the end of the same month.
(2) In the absence of information, sales, materials, selling & distribution,
Production and administration cost for the month of December (of the previous
16

Year) are assumed nil.

Illustration : 3
Prepare a Cash Budget for the three months ending 30th June from the following
Overhead
(a) Month
February
March
April
May
June
Information.

Sales
1,40,000
1,50,000
1,60,000
1,70,000
1,80,000

Materials
96,000
90,000
92,000
1,00,000
1,04,000

Wages
30,000
30,000
32,000
36,000
40,000

s
17,000
19,000
20,000
22,000
23,000

(b) Credit terms are Sales/ Debtors 10% sales are on cash, 50% of the credit
Sales are collected next month and the balance in the following month.
(c) Creditors - Materials 2 months
Wages month
Overheads month
(d) Cash and Bank balance on 1st April is expected to be `60,000.

17

(e) Other relevant information are :

(i) Plant and Machinery will be installed in February at a cost of 9,00,000
The monthly instalments of 12,000 are payable from April onwards.
(ii) Dividend @ 5% on preference share capital of 12,00,000 will be paid
On 1st June.
(iii) Advance to be received for sale of vehicles 90,000 in June.
(iv) Dividend from investments amounting to 10,000 are expected to be
received in June.
(v) Income Tax (advance) to be paid in June is 20,000.
Solution:
Cash budget from April to June
Particulars
(A) OPENING
(B) RECEIPTS
I.
Revenue
Sales (Cash)
Received from Debtors
Dividend
II. Capital
Advance
C. TOTAL
D. PAYMENTS
I.
Revenue
Paid to Creditors
Expenses
Wages
Overheads

April
(`)
60,000

May
(`)
47,500

June
(`)
46,000

16,000
1,30,500

17,000
1,39,500

18,000
1,48,500
10,000

2,06,500

2,04,000

90,000
3,12,500

96,000

90,000

92,000

31,500
19,500

35,000
21,000

39,000
22,500

18

II.

E.
F.

Capital
Machine
Income Tax
Dividends
TOTAL
CLOSING

M. No. (M)
Month
a. Sales
b. Sales (Cash) (M/2)
c. Sales (Credit)
d. Recd. From Debtors (1)
[(M - 1) x 1/2]
e. Recd. From Debtors (2)
[(M - 1) x 1/2]
f. Recd. From Debtors (Total)
a. Materials
b. Paid to Creditors (M-2)
a. Wages Due
b. Wages Paid (1)[3/4 x (M)]
c. Wages Paid (2)[1/4 x (M- 1)
d. Wages Paid (Total)
a. Overheads Due
b. Overheads Paid(1)[1/2 x (M)]
c. Overheads Paid(2)[1/2 x (M-1) ]
d. Overheads Paid (Total)
Working Notes :

12,000

12,000

1,59,000
47,500

1,58,000
46,000

1
Feb.
1,40,000
14,000
1,26,000

96,000
30,000
22,500
22,500
17,000
8,500
8,500

2
Mar.
1,50,000
15,000
1,35,000
63,000

63,000
90,000
30,000
22,500
7,500
30,000
19,000
9,500
8,500
18,000

12,000
20,000
60,000
2,45,500
67,000

3
Apr.
1,60,000
16,000
1,44,000
67,500

4
May.
1,70,000
17,000
1,53,000
72,000

5
June
1,80,000
18,000
1,62,000
76,500

63,000

67,500

72,000

1,30,500
92,000
96,000
32,000
24,000
7,500
31,500
20,000
10,000
9,500
19,500

1,39,500
1,00,000
90,000
36,000
27,000
8,000
35,000
22,000
11,000
10,000
21,000

1,48,500
1,04,000
92,000
40,000
30,000
9,000
39,000
23,000
11,500
11,000
22,500

Illustration : 4
A newly started Dhananjay. Co. Ltd. Wishes to prepare a cash budget from May.
19

You are required to prepare a cash budget for the first six months from the
following estimated revenue and expenses.

Month

Total Sales

Material
s

Wages

Overheads
Productio
n

(`)
(`)
20,000
May
22,000
June
24,000
July
26,000
August
September 28,000
30,000
October
Cash Balance on 1st May

(`)
(`)
(`)
20,000
4,000
3,200
14,000
4,400
3,300
14,000
4,600
3,300
12,000
4,600
3,400
12,000
4,800
3,500
16,000
4,800
3,600
was ` 10,000. A new machine is

Selling

&

Distributio

n
(`)
800
900
800
900
900
1,000
to be installed at 30,000

on credit to be repaid by two equal instalments in July and August.

Sales commission at 2.5% on total sales is to be paid within the month following
actual sales .10,000 being the amount of second call may be received in July , share
premium amounting to 2,000 is also obtainable with second call.
(1) Period of credit allowed by suppliers is to be two months.
(2) Period of credit allowed to customers is to be one month.
(3) Delay in payment of overheads is to be one month.
(4) Delay in payment of wages is 15 days (i.e, month)
(5) Assume cash sales to be 50% of total sales.
Solution :
Cash Budget
Particulars

May

June
20

July

Aug.

Sept.

Oct.

(A) OPENING
(B) RECEIPTS
Sales (Cash)
Received from Debtors
Call
Premium
C. TOTAL
D. PAYMENTS
Paid to Creditors
Wages
Commission
Production OH
S & D OH
Machine
E. TOTAL
F. CLOSING

(`)
10,000

(`)
18,000

(`)
30,300

(`)
21,050

(`)
7,750

(`)
11,100

10,000

11,000
10,000

13,000
12,000

14,000
13,000

15,000
14,000

20,000

39,000

12,000
11,000
10,000
2,000
65,300

46,050

34,750

40,100

20,000
4,500
550
3,300
900
15,000
44,250
21,050

14,000
4,600
600
3,300
800
15,000
38,300
7,750

14,000
4,700
650
3,400
900

12,000
4,800
700
3,500
900

23,650
11,100

21,900
18,200

2,000

4,200
500
3,200
800

2,000
18,000

8,700
30,300

Working Notes :

a.
b.
c.
c.
d.
a.

M. No. (M)
Month
Sales
Sales (Cash) (M/2)
Sales (Credit)
Recd. From Debtors(1) (M-1)
Paid to Creditors (M-1)
Wages Due

1
May
20,000
10,000
10,000
0
20,000
4,000
21

2
June
22,000
11,000
11,000
10,000
14,000
4,400

3
July
24,000
12,000
12,000
11,000
14,000
4,600

4
Aug.
26,000
13,000
13,000
12,000
12,000
4,600

5
Sept.
28,000
14,000
14,000
13,000
12,000
4,800

6
Oct.
30,000
15,000
15,000
14,000
16,000
4,800

b.
a.
b.
c.

Wages Paid (1)[(M-1)/2]

Wages Paid (2) (M/2)
Wages Paid (Total)
Sales Commission Paid
2.5% x (M 1)
Production OH Due
Production OH Paid
S & D OH Due
a. S & D OH Paid

2,000
2,000
0
3,200
800

2,000
2,200
4,200
500

2,200
2,300
4,500
550

2,300
2,300
4,600
600

2,300
2,400
4,700
650

2,400
2,400
4,800
700

3,300
3,200
900
800

3,300
3,300
800
900

3,400
3,300
900
800

3,500
3,400
900
900

3,600
3,500
1,000
900

Illustration : 5
Prepare cash budget of a Company for April, May and June 2014 in a columnar
Overhead
(a) Months
2014
January (Actual)
February (Actual)
March (Actual)
April (Budgeted)
May (Budgeted)
June (Budgeted)
From using the following information.

Sales
(`)
80,000
80,000
75,000
90,000
85,000
80,000

22

Materials
(`)
45,000
40,000
42,000
50,000
45,000
35,000

Wages
(`)
20,000
18,000
22,000
24,000
20,000
18,000

s
(`)
5,000
6,000
6,000
6,000
6,000
5,000

You are further informed that :

(a) 10% of the purchases and 20% of the sales are for cash.
(b) The average collection period of the company is month and the credit
Purchases are paid off regularly after one month.
(c) Wages are paid half monthly and rent of ` 500 is paid monthly.
(d) Cash and Bank balance as on April 1, is ` 15,000 and the Company wants to
Keep it on the end of every month at this figure, the excess cash being put in
Fixed deposits.

Solution :
Particulars
(A)
(B)

C.
D.

E.
F.

OPENING
RECEIPTS
Sales (Cash)
Received from Debtors
TOTAL
PAYMENTS
Purchases (Cash)
Paid to Creditors
Expenses
Wages
Rent
Other Expenses
Fixed Deposit (Bal Fig.)
TOTAL
CLOSING

W.N.

1
2

3
4
5
6

23

April
(`)
15,000

May
(`)
15,000

June
(`)
15,000

18,000
66,000
99,000

17,000
70,000
1,02,000

16,000
66,000
97,000

5,000
37,800

4,500
45,000

3,500
40,500

23,000
500
6,000
11,700
84,000
15,000

22,000
500
6,000
9,000
87,000
15,000

19,000
500
5,000
13,500
82,000
15,000

Cash budget

Working Notes :

1.
2.

3.

4.

M. No. (M)
Month
Sales
Sales (Cash)
Sales (Credit)
Recd. From Debtors(1)
Recd. From Debtors(2)
Total
Materials
Purchase (Cash)
Purchase (Credit)
Paid to Creditors
Expenses
Wages Due
Wages Paid (1)
Wages Paid (2)
Wages Paid (Total)

20%

1
Mar.
75,000
15,000
60,000

x (M -1)
xM
42,000
4,200
37,800
(M 1)
22,000
( M-1)/2
(M/2)

24

2
Apr.
90,000
18,000
72,000
30,000
36,000
66,000
50,000
5,000
45,000
37,800

3
May
85,000
17,000
68,000
36,000
34,000
70,000
45,000
4,500
40,500
45,000

4
June
80,000
16,000
64,000
34,000
32,000
66,000
35,000
3,500
31,500
40,500

24,000
11,000
12,000
23,000

20,000
12,000
10,000
22,000

18,000
10,000
9,000
19,000