Track 8 · Building budgets
Cash budgets
Turn budgeted sales and costs into a monthly cash budget using collection and payment patterns, and spot when financing is needed.
You will be able to
- Schedule cash receipts from credit sales using a collection pattern.
- Schedule payments by when cash actually leaves, excluding non-cash items such as depreciation.
- Build a month-by-month cash budget and size the financing needed to hold a minimum balance.
Builds on
Profit doesn't pay suppliers — cash does. The cash budget translates the operating budgets into the timing of receipts and payments, month by month, so management can see shortfalls months before they happen and arrange finance on good terms rather than in a panic.
Receipts. Credit sales are collected over several months. Fernhill sells everything on credit and collects 40% in the month of sale, 50% the following month and 10% the month after. January's receipts therefore come from January, December and November sales.
Payments. Record each cost in the month cash leaves: clay is paid the month after purchase; labour and variable overhead in the month incurred; fixed overheads of 18,000 a month — but 3,000 of that is depreciation, which never involves a payment, so only 15,000 goes in. Capital spending (a 60,000 kiln in March), loan repayments, tax and dividends are cash items even though some never touch profit.
Layout. Opening cash + receipts − payments = closing cash, and each closing balance becomes the next month's opening. Compare closing cash with the minimum balance management wants as a buffer; the gap is the financing to arrange.
Included with a Formula Quest membership
A membership includes the worked examples, all 6 graded exercises and the full curriculum. The foundations track, the first ledger lessons and the Northstar Trading case stay free.
Content review: answers and figures are checked by automated tests against the accounting engine, and the text has had an internal review against the standards; independent review by a qualified accountant is pending.