Example No.

A firm adopt a six monthly time span, subdivided

into monthly intervals for its cash budget.
(A) The following information is available in respect
of its operations:
Months
Particulars 1 2 3 4 5 6

             
Sales 40 50 60 60 60 60
Purchase 1 1.5 2 2 2 1
Direct labour 6 7 8 8 8 6
Manu. Overheads 13 13.5 14 14 14 13
Admin Expenses 2 2 2 2 2 2
Distribution 2 3 4 4 4 2
Expenses
Raw Materials( 30 14 15 16 16 16 15
(B) Assume the following financial flows during the period:

(1)Inflows: (a) interest received in month 1 and month 6, Rs 1 lach each;

(b) Dividend received during month 3 and 6, Rs 2 lach
each;
(c) Sales of share in month 6 , Rs 160 lach;
(2) Outflows: (a) Interest paid during months 1, Rs 0.4 Lach;
(b) Dividend paid during months 1 and 4, Rs 2 lach each;
(c) Installment payment on m/c in month 6, Rs 20 lach;
(d) Repayment of loan in month 6, Rs 80 Lach;

(3) Assume that 10% of each month's sales are for cash; the balance 90% on credit.
The term credit and experience are:
(a) No cash discount;
(b) 1 % of credit sales is returned by the customers;
(c) 1 % of total accounts receivable is bad debts;
(d) 50 % of all accounts that are going to pay, do so with
in 30 days;
(e) 100 % of all accounts that are going to pay, do so with
60 days;
ution: Cash Budget for 6 months:
Explanation:

1st Month:
Total sale = 40 lac
Cash Sale (10%) =4 lac
Credit sale(40-4)= 36 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale ie 36 lac) = .72 lac
Balance amount = 36-.72
= 35.28 lac
Now:

50% of total balance credit amt will pay next 30 days ie. 2nd month
= 35.28/2
= 17.64 lac
Remaining all 100% will pay in next 60 day ie in 3rd month
= 17.64 lac

Thus there no receivable in 1st month, because no previous

month information given.
2nd Month:

Total sale = 50 lac

Cash Sale (10%) = 5 lac
Credit sale(40-4)= 45 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale i.e. 45 lac) = .9 lac
Balance amount = 45-.9
= 44.1 lac
Now:

50% of total balance credit amt will pay next 30 days i.e.. 3nd month
= 44.1/2
= 22.05 lac
Remaining all 100% will pay in next 60 day i.e. in 4th month
= 22.05 lac

Total receivable in 2nd month = 17.64 lac ( amount received from

previous month i.e. 1st month)
3rd Month:

Total sale = 60 lac

Cash Sale (10%) = 6 lac
Credit sale(40-4)= 54 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale i.e. 45 lac) = 1.08 lac
Balance amount = 54-1.08
= 52.92 lac
Now:

50% of total balance credit amt will pay next 30 days i.e.. 3nd month
= 52.92/2
= 26.46 lac
Remaining all 100% will pay in next 60 day i.e. in 4th month
= 26.46 lac

Total receivable in 3nd month = 17.64 + 22.05

= 39.69 lac
( 17.05 lac amount received from month 1st month & 22.05 lac received
from 2nd month )
4th Month:

Total sale = 60 lac

Cash Sale (10%) = 6 lac
Credit sale(40-4)= 54 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale i.e. 45 lac) = 1.08 lac
Balance amount = 54-1.08
= 52.92 lac
Now:

50% of total balance credit amt will pay next 30 days i.e.. 4nd month
= 52.92/2
= 26.46 lac
Remaining all 100% will pay in next 60 day i.e. in 5th month
= 26.46 lac

Total receivable in 4th month = 22.05 + 26.46

= 48.49 lac
( 22.05 lac amount received from month 2nd month & 26.46 lac received
from 3rd month )
 5th Month:

Total sale = 60 lac

Cash Sale (10%) = 6 lac
Credit sale(40-4)= 54 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale i.e. 45 lac) = 1.08 lac
Balance amount = 54-1.08
= 52.92 lac
Now:

50% of total balance credit amt will pay next 30 days i.e.. 4nd month
= 52.92/2
= 26.46 lac
Remaining all 100% will pay in next 60 day i.e. in 5th month
= 26.46 lac

Total receivable in 3nd month = 26.46 + 26.46

= 52.92 lac
( 26.46 lac amount received from month 3rd month & 26.46 lac received
from 4th month )
 6th Month:

Total sale = 60 lac

Cash Sale (10%) = 6 lac
Credit sale(40-4)= 54 lac
Nullified sale = (a) 1% return
(b) 1 % bad debt
Total (2% of total credit sale i.e. 45 lac) = 1.08 lac
Balance amount = 54-1.08
= 52.92 lac
Now:

50% of total balance credit amt will pay next 30 days i.e.. 4nd month
= 52.92/2
= 26.46 lac
Remaining all 100% will pay in next 60 day i.e. in 5th month
= 26.46 lac

Total receivable in 4th month = 26.46 + 26.46

= 52.92 lac
( 26.46 lac amount received from month 4th month & 26.46 lac received
from 5th month )