Cash Budget: Videos & Practice Problems
Overview of the Cash Budget
Which statement best explains the main importance of preparing a cash budget?
To help managers present the company's net worth to investors to obtain more financing.
To help managers ensure sufficient funds to meet obligations and avoid liquidity shortages.
To help managers determine how much dividends will be paid to shareholders.
To help managers record all actual cash transactions after they occur during the period.
Intermediate Documents: Cash Collections Budget
Intermediate Documents: Cash Collections Budget
A furniture maker has set the following budgeted sales for the coming three months:
It is also projected that 60% of total sales would come from credit sales that can be collected a month after the sale is made. What is the total amount of cash expected to be received from customers for the month of May?
\$90,000
\$100,000
\$105,000
\$110,000
Intermediate Documents: Cash Disbursements (Product Costs)
Intermediate Documents: Cash Disbursements (Product Costs)
Intermediate Documents: Cash Disbursements (Product Costs)
Intermediate Documents: Cash Disbursements (Product Costs)
A furniture maker has set the following budgeted product costs for the coming three months:
\$500 in manufacturing overhead costs is payable one month later, while labor costs and the remaining manufacturing overhead must be paid at the end of the month. Also, direct materials purchases carry 1-month credit terms. Calculate the total cash payments for product costs for the month of May.
\$36,860
\$38,000
\$37,500
\$37,360
Intermediate Documents: Cash Disbursements (Other Costs)
Intermediate Documents: Cash Disbursements (Other Costs)
Intermediate Documents: Cash Disbursements (Other Costs)
Is it always required that operating expenses be paid in the same period as they are incurred?
Yes, because direct materials purchases are usually settled immediately upon delivery.
No, because payment timing depends on agreed terms, not just when the cost is recognized.
Yes, because all period costs must be expensed immediately.
No, because manufacturing overhead amounts may be paid later depending on supplier arrangements.
Combined Cash Budget
Combined Cash Budget
A furniture maker has set the following expected cash data for the month of May:
Does the furniture maker need to acquire financing at the end of May?
No, the furniture maker has a positive ending cash balance.
Yes, the furniture maker needs financing equal to \$8,000.
Yes, the furniture maker needs an additional finance of \$150.
No, the furniture maker has an ending cash balance greater than its beginning cash balance.
