and investment income.
2.The cash disbursements section, which comprises all cash payments made by purpose.
3.The cash surplus or deficit section, which simply shows the difference between the total cash available and the total cash needed including a minimum cash balance if required. If there is surplus cash, loans may be repaid or temporary investments made.
4.The financing section, which provides a detailed account of the borrowings, repayments , and interest payments expected during the budgeting period.
5.The investments section, which encompasses investment of excess cash and liquidation of investment of surplus cash.
Schedule 8
To illustrate, we will make the following assumptions:
Note: To be useful for cash planning and control, the cash budget must be prepared on a monthly basis.
The Putnam Company – Cash Budget
| * | $19,000 (from the balance sheet 20A). |
| ** | The company desires to maintain a $ 10,000 minimum cash balance at the end of each quarter. Therefore, borrowing must be sufficient to cover the cash shortfall of $19,325 and to provide for the minimum cash balance of $10,000, for a total of $29,325. |
| *** | The interest payments relate only to the principal being repaid at the time it is repaid. For example, the interest in quarter 3 relates only to the interest due on the $30,000 principal being repaid from quarter 1 borrowing and on the $15,000 principal being repaid from quarter 2 borrowing. Total interest being paid is $3,000, shown as follows: |
| $30,000 × 10% × 3/4= $2,250 | |
| $15,000 × 10% × 2/4=750 | |
| + $35,000 × 10% × 3/4= $3,000 |
The Budgeted Income Statement
The budgeted income statement summarizes the various component projections of revenue and expenses for the budgeting period. However, for control purposes the budget can be divided into quarters or even months depending on the need.
Schedule 9
The Putnam Company – Budgeted Income Statement
| * | Cost of goods manufactured = total manufacturing cost + beginning work in process inventory – ending work in process inventory. Since there are no work in process inventories in this illustration, cost of goods manufactured = total manufacturing cost. Thus cost of goods manufactured = direct materials used + direct labor + factory overhead = $61,000 (12,200 ibs. @$5 per lbs.—Schedule 3) + $305,000 (Schedule 4) + $134,200 (Schedule 5) = $500,200 |
| ** | Estimated |
The Budgeted Balance Sheet
The budgeted balance sheet is developed by beginning with the balance sheet for the year just ended and adjusting it, using all the activities that are expected to take place during the budgeting period. Some of the reasons why the budgeted balance sheet must be prepared are:
We can construct the budgeted balance sheet by using:
Putnam’s budgeted balance sheet for December 31, 20B, is presented below. Supporting calculations of the individual statement accounts are also provided. To illustrate, we will use the following balance sheet for the year 20A.
Schedule 10
The Putnam Company – Balance Sheet
| December 31, 20A | ||
| Assets | ||
| Current assets: | ||
| Cash | $ 19,000 | |
| Accounts receivable | 100,000 | |
| Materials inventory (490 lbs.) | 2,450 | |
| Finished goods inventory (200 units) | 16,400 |
|
