MI – May 2021 – L1 – SB – Q4 – Budgeting

Prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020.

Question

From the information below, prepare a monthly cash budget for Wareroom Trading Limited for the first three months of 2020 using a columnar format.

	NOV 2019	DEC 2019	JAN 2020	FEB 2020	MAR 2020
Sales	850,000	950,000	720,000	750,000	780,000
Purchases	360,000	360,000	300,000	400,000	350,000

All sales are on credit, collectable 50% in 30 days, 25% in 60 days, 20% in 90 days and balance regarded as bad debts.
All purchases are also on credit, payable 40% in 30 days and 30% each in 60 and 90 days respectively.
A new generator costing N455,000 will be acquired in February under a 30-day credit agreement.
An old car will be sold for N50,000 cash in February.
Monthly salaries are N80,000 payable as and when due.
Commission on sales are 5% payable to sales agents 2 months in arrears.
Company income tax of N235,000 is due and payable in January.
An investment is expected to bring in N60,000 gross in February, subject to 10% withholding tax.
The staff Christmas party in December is expected to cost the company a total of N90,000, though 60% of the expenses will be settled the following month.
Assume an overdraft of N283,000 on 31 December 2019.

Answer

Inflows	January	February	March
Sales Collections	N687,500	N767,500	N745,000
Sale of Car	–	N50,000	–
Investment Income	–	N54,000	–
Total Inflows (A)	N687,500	N871,500	N745,000

Outflows	January	February	March
Purchases	N252,000	N336,000	N358,000
Salaries	N80,000	N80,000	N80,000
Purchase of Generator	–	–	N455,000
Sales Commission	N42,500	N47,500	N36,000
Company Income Tax	N235,000	–	–
Staff Christmas Party	N54,000	–	–
Total Outflows (B)	N663,500	N463,500	N929,000