Question

Candice Inc. provides you with the following budgeted information for two months in 2018:

                                                                                                March                         April

Sales                                                                                        600,000                       700,000

Manufacturing Costs                                                              300,000                       300,000

Capital Expenditures*                                                             300,000                       -

General and Administration Costs (including amortization)  70,000                         90,000

*Induces training programs, machines and building

Expectations:

• Cash sales represent 20% of total sales
• All sales on account are collected in the following month
• 50% of March’s $300,000 worth of capital expenditures is to be paid at the end of March. The remainder is to be paid in the following month.
• Monthly amortization represents 10% of general and administration costs
• Manufacturing costs and general and administration costs are to be paid in the month in which they are incurred
• Dividends of $5,000 are expected to be declared in March and paid in April
• Candice Inc. obtains the minimum financing needed to ensure at least a $7,000 cash balance at the end of the month through a note payable. Assume that any amount taken out of the note payable may be repaid only at year end.

As of March 1

Cash                                                                                40,000
Accounts Receivable                                              230,000*

Inventory                                                                     35,000
Noncurrent Assets                                                  100,000

Accumulated Depreciation                                 6,000

Accounts Payable                                                     10,000

Dividends Payable                                                   0
Notes Payable                                                            265,000

Stockholder’s Equity                                              124,000

*Comprised only of sales on account incurred in February

a) What is the difference between a cash budget and an operating budget?

b) Prepare a cash budget for March and April.

Candice inc. Cash Budget for March and April
	March	April

Answer 1

Cash budget, an estimation of the cash inflows and outflows for a business is data collected over a specific period. This budget is used to assess whether the company has sufficient cash to operate efficiently. The importance of the cash budget according, “lies in its ability to identify a company's future financing needs, highlight the need for corrective actions and evaluate a company's performance”
Operating Budget shows the company's projected revenue, as well as, expenses for a future period normally in the next year. It is mainly presented on the income statement. All the costs associated with the operation of the business such as the costs of materials, labor, machinery, transportation, storage, utilities, administration and supervision as well as, helps the company with the data needed to charge enough to continue operating properly.
Cash Budget for March and April
	Particular	March	April
	Opening Cash	40000	7000
Add	Cash Sales 20% of Sales	120000	140000
	Sales accounted in next month	184000	480000
	Minimum Finance needed at end of month (B/F) Notes Payable	176000
Less	General and Admin Cost (Excluding Amortization)	63000	81000
	Manufacturing Cost	300000	300000
	Dividend		5000
	Capital Expenditure	150000	150000
	Closing Balance Subject to minimum of 7000	7000	91000