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  #1  
Old Sunday, October 25, 2009
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Exclamation Cash budget

I need help regarding the cash budget question that is repeatedly asked in PAPER-1.

Suggest me some book.

Regards
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Old Sunday, October 25, 2009
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Arrow @ r.i.p and all who have opted..........

[QUOTE=r.i.p;149033]I need help regarding the cash budget question that is repeatedly asked in PAPER-1.

Suggest me some book.

Dear friend:

Yes, it is also considered the most repeated question in A.A-paper-One, and this

question may put a good impression over the examiner.....

Most of the candidates, do not go for it..........................

For Cash Budgeting............Following books may help you to grip the idea.

1) Cost Accounting Planning and Control.........by Matz & Usry.

2) Management Accounting...........................by Collin Dury.

And these two books are more than enough.

Regards.
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Old Sunday, October 25, 2009
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Is there any Pakistani book abt. it?
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Old Saturday, October 31, 2009
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Default Cash Budgeting

@ r.i.p

For cash budget go through Brigham’s Financial Management, the Chapters are on Capital Budgeting I suppose, I don’t have that book accessible now.
Dear rip I suggest prepare yourself topic wise from different foreign reliable books. You might have to prepare like “Partnership” from one book, “company Accounts” from another book and Ratio and Cash Budgeting from yet another book.

Then, only difficulty you should have is of terminology used in Pakistan, for that use and practice any good Pakistani book(s), this should not take more than five days for each paper. Pakistani books are all same get yourself anyone of them. Like I have M.A. Ghani’s Advanced Accounts, this is the best I could get in my city and is serving its purpose yet.
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Old Thursday, December 31, 2009
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Question urgenttttttt help needed

plz member help needed in cash budget can any 1 explain this in detail , as its one of the repeated question in papers ..

Last edited by Andrew Dufresne; Thursday, December 31, 2009 at 06:02 PM. Reason: One z is enough in Plz
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Old Thursday, December 31, 2009
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Question

Quote:
Originally Posted by MAHIKAN View Post
plz member help needed in cash budget can any 1 explain this in detail , as its one of the repeated question in papers ..
dear Mahikan
As for as ur query is concerned abt cash budgets so i m confound overhere whether here u are refereing cash budgets wid respect to cost accounting or u talking abt cash budgets in perview of finacncialmanagement.
futhermore, though, i m std of accounting n finance frm last 7 year, but unluckly i have not opted it in css so in respect of css papers and its problem i may be foriegn in this regard. Any how i would like to share some idea of cash budgets wid u coz i have this stuff in my pc and,may be it may help u out...........

Prepare a Cash Budget

Overview

Just as you would not purchase new furniture for your home without enough cash, or at least a solid plan to cover a personal loan from your bank, your business needs the same careful handling of its expenditures. All businesses, no matter what type or size, need to properly develop a plan for their expected cash intake and spending. This plan is commonly known as a cash budget, and it can be prepared quarterly or annually.

Outline:

Purposes of Cash Budgeting
Consistent Budgets
Checking the Reasonableness of the Budget
Sales and Other Potential Cash Sources
Reserve
Sample Cash Budget
Resources
I. Purposes of Cash Budgeting
Properly preparing your cash budget will show how cash flows in and out of your business. Also, it may then be used in planning your short-term credit needs. In today's financial world, you are required by most financial institutions to prepare cash budgets before making capital expenditures for new assets as well as for expenditures associated with any planned expansion. The cash budget determines your future ability to pay debts as well as expenses. For example, preliminary budget estimates may reveal that your disbursements are lumped together and that, with more careful planning, you can spread your payments to creditors more evenly throughout the entire year. As a result, less bank credit will be needed and interest costs will be lower. Banks and other credit-granting institutions are more inclined to grant you loans under favorable terms if your loan request is supported by a methodical cash plan. Similarly, businesses that operate on a casual day-to-day basis are more likely to borrow funds at inopportune times and in excessive amounts. Without planning, there is no certainty that you will be able to repay your loans on schedule. However, once you've carefully mapped out a cash budget, you will be able to compare it to the actual cash inflows and outflows of your business. You will find that this comparison will go a long way in assisting you during future cash budget preparation. Also, a monthly cash budget helps pinpoint estimated cash balances at the end of each month which may foresee short-term cash shortfalls.



II. Consistent Budgets

Cash budgeting is a continuous process that can be checked for consistency and accuracy by comparing budgeted amounts with amounts that can be expected from using typical ratios or financial statement relationships. For example, your treasurer will estimate the payments made to your suppliers of merchandise or materials, the payments to employees for wages and salaries, and the other payments that you are obligated to make. These payments can be scheduled by dates so that all discounts will be taken, and so that no obligation will be overlooked when it comes due. Cash collections from customers can also be estimated and scheduled by dates along with other expected cash receipts. With careful cash planning, you should be able to maintain a sufficient cash balance for your needs and not put yourself in the position of holding excessive balances of nonproductive cash. In the normal course of operations in a merchandising business, for example, merchandise is purchased and sold to customers who eventually pay for the merchandise sold to them. Usually there is a time lag in business operations. It may be necessary to pay the suppliers for merchandise before the merchandise is sold to the customers. Before and during a busy selling season the demand for cash may be higher than the inflow of cash from operations. In this case it may be necessary to arrange short-term loans. When the selling season is over, cash collections from customers will be relatively large and the loans can be paid off.

Example of a Cash Budget

The following is an example of a cash budget for the 90 days provided below for the XYZ Company.

CASH BUDGET FOR 90 DAYS
Beginning cash balance $ 320,000
Add:
Estimated collections on accounts receivable 750,000
Estimated cash sales 250,000
$1,320,000
Deduct:
Estimated payments on accounts payable $ 800,000
Estimated cash expenses 150,000
Contractual payments on long-term debt 150,000
Quarterly dividend 50,000
$1,150,000
Estimated ending cash balance $ 170,000



Analysis of Example Cash Budget

Analysis of the financial statements of the XYZ Company shows that the accounts receivable remain at about $500,000 throughout the year; that is, there is no seasonal fluctuation in sales. The accounts receivable turns over six times a year, or once every 60 days. The inventory throughout the year remains at about $800,000 and turns over every 90 days. The accounts payable remains at about $400,000 and turns over eight times a year, about once every 45 days. With an accounts receivable collection period of 60 days and an average balance outstanding of $500,000, it appears that $750,000 is the amount that should be collected on the receivables in 90 days. Cash sales should amount to about $250,000 if the inventory of $800,000 valued at cost turns over once in 90 days and if the average markup is about $200,000. Therefore, if an inventory of $1,000,000 at retail turns over once every 90 days and $750,000 flows through accounts receivable, then approximately $250,000 must be sold on a cash basis. Cash payments for expenses are estimated to be $150,000 in the next 90 days. This figure can be roughly checked by referring to the expenses on the income statement. A rough measure of the cash expenses can usually be obtained by using the operating expenses less any non-cash expenses such as depreciation. For example, if there is no seasonal factor, the total amount divided by four should be an approximate check on the amount budgeted for the next 90 days.


III. Checking the Reasonableness of the Budget

If it appears that the budgeted amounts will differ substantially from ratios and relationships taken from past statements, then further attention should be given to the budget. For instance, some factors may have been overlooked in budgeting, or past statement relationships may no longer be applicable, due to unrecognized changes.



IV. Sales and Other Potential Cash Sources

Normally, sales activity is expected to produce the bulk of the cash receipts. If sales are made on a credit basis, accounts receivable will eventually be translated into cash as the customers pay their accounts. The time required to collect outstanding accounts will have to be estimated, and provisions must be made for discounts, returns, allowances granted, and uncollectable accounts. In addition to sales, there are many other potential cash sources. These sources must be examined for possible additions to cash when setting up a total cash receipts budget for the year. Dividends and interest may be collected on investments or cash may be received from an incidental operation (i.e., rent or sale of scrap material). Ordinarily, cash will be realized from the sale of investments in stocks and bonds and from the sale of machinery or other assets not incurred in the normal course of trade. As a result of cash flow, stock may be issued or debt may be incurred with cash flowing. The various cost budgets, plans for capital acquisitions, commitments for the discharge of debt, and plans for dividend payments are brought together in a cash disbursements budget. If possible, payments will be scheduled at convenient times, when cash balances are expected to be sufficiently high. Frequently, the demand for cash is not spread evenly throughout the year. Several large payments may become due in one particular month. If cash receipts in that month are not expected to be sufficient, the company will either plan to hold back cash for these payments or will borrow. It is unlikely that disbursements will be made in every instance when costs are incurred or when materials and services are used. Advertising, insurance and rent, for example, are often paid in advance with the cost being absorbed against future operations. A debt of cash disbursements is made by scheduling payments required for materials, labor, other operating costs, dividends, debt service, and so forth. Budgeted cash receipts and disbursements are brought together to form a total cash budget. From this summary of estimated cash flow, it is possible to anticipate future cash balances. In some months, receipts may not be large enough to cover disbursements. If this happens, the cash balance will have to be reduced. If the outflow of cash is too great, plans will have to be made to borrow funds. In other months, when receipts are greater than disbursements, loans can be repaid and cash balances can be built up.



V. Reserve

Financial plans are drawn up so that a minimum balance of cash will be available at all times. The amount to be held will depend on estimated future cash flows and the financial policy adopted. In general, the cash balance should be large enough to enable the company to meet its payrolls and pay its operating costs for the next month, with some allowance made for contingencies and miscalculations in planning. By holding adequate cash balances, management can cope with small adversities and will not be forced to borrow under unfavorable conditions. If trouble strikes, there will be a reserve to draw upon. While the reserve is being used, management can make alternate plans and can secure additional cash from other sources to meet future needs. Opinions differ as to what amount of cash should be held in reserve. Some companies maintain fairly substantial cash balances as well as a secondary reserve that consists of investments that can easily be converted into cash. Other companies prefer to operate with small cash reserves and when cash is needed depend on a line of credit which is established at a bank. Cash up to a certain limit may be borrowed when needed and arrangements are made for eventual repayment.



VI. Sample Cash Budget

(You can use the interactive table provided to create a cash budget for your company.)

CASH BUDGET
XYZ COMPANY
ESTIMATED STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002


CASH FLOWS FROM OPERATING ACTIVITIES
JAN FEB MAR APR
Estimated cash balance at the beginning of the period..
Estimated cash inflows:
Cash Sales..
Collections on credit sales...
Bank Loans..
Total Inflows
Estimated cash outflows:
Payments to suppliers..
Payments of operating and other expenses..
Payments on equipment loan and interest..
Payments on bank loans and interest..
Dividends..
Investment in short-term securities..
Total outflows
Estimated cash balance at the end of the period..
wasalam
regards
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  #7  
Old Thursday, December 31, 2009
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Thanks. Will help a lot. Recommend some good book for practice.
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Old Thursday, December 31, 2009
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@ Adib

I do agree with u Mr Adib that most of the candidate do not go for Cash Budget.

I would suggest students to prepare the following topics for paper - 1 and instead of preparing for most of the topics they must practice following two topics to become experts...

1. Final Accounts
2. Ratio Analysis

moreover Mcq's and a compulsory question of theory is a must...

@Ali Randhava

Principles of Accounting by M.A Ghuni is a very good book for CSS Paper - 1.
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  #9  
Old Thursday, December 31, 2009
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Default Cash Budget

@ MAHIKAN

This must help.
http://www.youtube.com/v/FKNv8zuWksU
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  #10  
Old Saturday, January 02, 2010
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[QUOTE=Purab Sarhan;162089]@ MAHIKAN
dear purab thanks 4 ur help i l try it n ask again if there was
some problem
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