Ch.3 The Cash Budget Goals: 1) To understand a basic/simple cash flow format. 2) To understand short term cash flow and cost structure.

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Presentation transcript:

Ch.3 The Cash Budget Goals: 1) To understand a basic/simple cash flow format. 2) To understand short term cash flow and cost structure.

1. Def: a listing of the firm’s anticipated cash inflows and outflows over a specified period. It is only about actual cash flows. 2. Major components in Cash Budget A listing of collections ( cash inflow) and disbursements (cash outflow) Ending cash balance and borrowing requirement

3. Assumptions Expected sales through Sept are given in Exhibit % of Sales are for Cash. 45% are collected in the following month and 15% are collected two month after the sale. Wages are equal to 20% of Sales. Leasing expense for the property, plant and equipment is $10,000 per month. Interest payment of $30,000 on long term debt are due to in June and September.

A $ 50,000 dividend will be paid to common shares in June Taxes of $25,000 are expected to be paid in June and September A $200,000 capital improvement is scheduled to be paid in July, but management is flexible on the scheduling of this outlay Bithlo Barbecues must keep a minimum cash balance $15, 000 by agreement with its bank It is supposed to have a ending cash balance of $20,000 in May

4. Collection It is important that firms knows how quickly it can collect on those sales. 5. Usefulness Short term borrowing Large capital expenditure 6. If (condition, A, B)