Cash Budgets practical problems and solutions

Problem 1

From the following information, prepare cash budget for the month of January to April:

Expected SalesExpected Purchase

Wages to be paid to workers Rs. 5,000 each month. Balance at the bank on 1st Jan. $8,000. It has been decided by the Management that:
(i) In case of deficit fund within the limit of $10,000 arrangements can be made with bank.
(ii) In case of deficit fund exceeding Rs. 10,000 but within the limits of $42,000 issue of debentures is to be preferred.
(iii) In case of deficit fund exceeding $42,000, issue of shares is preferred (considering the fact that it is within the limit of authorized capital).


Opening balance8,00015,000
Issue of debentures30,00041,000
Issue of shares55,000
Less: Payments
Closing Cash53,00085,00086,00095,000

Problem 2

Prepare Cash Budget of a Company for April, May and June 2019 in a columnar form using the following information:

Also Check:  Budget - Definition, Explanation, Classification with Examples
Jan. (Actual)80,00045,00020,0005,000
Feb. (Actual)80,00040,00018,0006,000
March (Actual)75,00042,00022,0006,000
April Budget90,00050,00024,0006,000
May Budget85,00045,00020,0006,000
June Budget80,00035,00018,0005,000

You are further informed that:
(a) 10% of purchase and 20% of Sale are for cash
(b) The average collection period of the Co. is 1/2 month and credit purchase is paid off regularly after one month
(c) Wages are paid half monthly and the rent of $500 excluded in expense is paid monthly
(d) Cash and Bank Balance on April 1, was $15,000 and the company wants to keep it on end of every month below this figure, the excess cash being put in fixed deposits.


Cash Budget – 2019:

April ($)May ($)June ($)
Cash & Bank Balance15,00011,70012,700
Cash Sale (20%)18,00017,00016,000
Cash collections From Drs.66,00070,00066,000
Cash Outflow
Cash flow (10%)5,0004,5003,500
Payment of Crs.37,80045,00040,500
Fixed Deposits15,0008,00013,000
Cash balance (closing)21,70012,70013,200
Also Check:  Q. 4. What are functional budgets? Which functional budgets are commonly used by the Management?

Problem 3

From the following information prepare a monthly cash budget for the three months ending 31st Dec.2019.

Admin. Selling, etc

(i) Credit terms are:

(a) Sales — 3 months to debtors. 10% of sales are on cash. On an average, 50% of credit sales are paid on the due dates while the other 50% are paid in the month following

(b) Creditors for material — 2 months.

(ii) Lag in payment:

Wages. 1/4 month, overheads — 1/2 month.

(iii) Cash and Bank Balance on 1st Oct. expected $1,500.

(iv) Other information

(a) Plant and Machinery to be installed in Aug. at a cost of $24,000. It will be paid for by monthly installments of $5,00 each from 1st Oct.;

(b) Preference share dividend @ 5% on $50,000 are to be paid on 1st Dec.

(c) Calls on 250 equity shares @ $2 per share expected on 1st November;

(d) Dividends from investments amounting to $250 are expected on 31st Dec.;

(e) Income tax (advance) to be paid in December $ 500

Also Check:  Q. 3. Explain in brief the various factors for budgetary control.


Cash Budget
Period: 3 months ending 31 Dec. 2019
Details:Ocr. ($)Nov. ($)Dec. ($)
Balance b/d1,500.00537.50350.00
Receipts (Estimated):
Total (A)4,712.504,5004,312.50
Adm. S. & D.187.50200.00212.50
Pref. Dividend2,500.00
Income tax500.00
Plant and Machinery 500 each5,00.005,00.005,00.00
Total (B) Year4,175.004,150.007,337.50
Balance c/d (A – B)537.50350(-3,025)

Calculation of amount of sales:

MonthSale ($)Oct. ($)Nov. ($)December ($)

Wages Calculation

1/4 wages of September and 3/4 wages of Oct. Thus,

(1/4 x 750) = 187.50
3/4 x 800 = 600
Total = 787.50

The wages of other months will be calculated on the same pattern.

13 thoughts on “Cash Budgets practical problems and solutions”

  1. In problem 2, the closing balance should be 15000 for each month and same should be the opening balance for the following months. The excess of 15000 should be deposited to FD. So the deposit in april will be 11700, in may it should be 9000 and in June it should be 13500. Expenses in june should be 5000 not 6000 as there is no lag period mentioned for the same

    The first point under additional information should be edited, both percentage are mentioned for purchase one should be for sales.

    Apologies for being so critical, this page was over all very helpful in revisiting my concepts as i required. Thanks! Kudos!

  2. In problem 3

    (a) Plant and Machinery to be installed in Aug. at a cost of $24,000. It will be paid for by monthly installments of $5,000 each from 1st Oct

    In solution, it is taken at 500 per month.

  3. hello plz help me for solving this question
    i have exam on 23 march 2020 so plz reply me urgentlly.
    cash budget
    1.extract of the statement of financial position of capital engineering as at 31 dec 20X6.
    cash at bank $295000
    accounts receivable $199000
    account payable $585000
    jan feb march
    credit sales $790000 $660000 520000
    case sales 52000 65000 70000
    credit purchase 770000 595000 720000
    cash purchase 80000 90000 75000

    1).80% of the credit sales in any particular month will be collected in the month of the sales are made and the remaining 20% will be collected in the following month. all accounts receivable as at 31 dec 2006 will be collected by 31 jan 2007.
    2).all credit purchase are paid in the month following the purchase.all accounts payable as at 31 dec 2006 will be paid by 31 jan 2007.
    3).rental expense per monthof $12000 needs to be paid at the begning of every month.
    4).the salesman will be entitled to a 1% commission on the total monthly sales and will be paid in the month of the sales.
    5).a new machine bought in jan 2007 costing $50000 wil be paid in two equal instalments starting from feb 2007.

    1.prepare cash collection schedule from the sales and accounts receivables.
    2.prepare a cash payment for purchase and account payables.
    3.prepare the cash budget for the three months ending 31 march 2007.

  4. JL is preparing its cash budget for the next three quarters. The following data have been extracted from the operational budgets:
    Sales revenue
    Quarter 1​​OMR 500,000
    Quarter 2​​OMR 450,000
    Quarter 3​​OMR 480,000
    Direct material purchases
    Quarter 1​​OMR 138,000
    Quarter 2​​OMR 151,200​
    Quarter 3​​OMR 115,600

    Additional information is available as follows:
    • JL sells 20% of its goods for cash. Of the remaining sales value, 70% is received within the same quarter as sale and 30% is received in the following quarter. It is estimated that trade receivables will be OMR 125,000 at the beginning of Quarter 1. No bad debts are anticipated.

    • 50% of payments for direct material purchases are made in the quarter of purchase, with the remaining 50% in the quarter following purchase. It is estimated that the amount owing for direct material purchases will be OMR 60,000 at the beginning of Quarter 1.

    • JL pays labour and overhead costs when they are incurred. It has been estimated that labour and overhead costs in total will be OMR 303,600 per quarter. This figure includes depreciation of OMR 19,600.

    • JL expects to repay a loan of OMR 100,000 in Quarter 3.

    • The cash balance at the beginning of Quarter 1 is estimated to be OMR 49,400 positive.

    You are required to calculate:-
    Prepare a cash budget for each of the THREE quarters.


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