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Chapter 11
budgeting
LEARNERS SHOULD BE ABLE TO:
Prepare and present a cash budget for sole traders:
• Projected revenue and expenditure.
• Projected debtors’ collection.
• Projected creditors’ payment.
Prepare and present a Projected Income Statement.
Integrate ethical issues.
Integrate internal audit and internal control issues
Introduction
Cash Budget
Is a forecast of the cash Is used to predict the
position of a business amount of profit that a
Projected Income Statement
over a future period and business will generate
sets out the expected over a certain period and
cash receipts and cash sets out the expected
payments over the incocme to be generated
budget period. and expenses to be
incurred for the budget
period.
, The Cash Budget
Ask yourself 2 questions when preparing a Cash Budget:
How much money / cash will be received over the budget period?
How much money / cash will be paid over the budget period?
“Forget” about all transactions that doesn’t involve cash!
Importance of the Cash Budget
Cash Budget:
- An essential tool used in a business
to monitor the LIQUIDITY of the
business.
By analysing the Cash Budget, management can ascertain whether the business will have
enough cash to:
$ Meet its short-term commitments such as paying creditors and repaying loans.
$ Purchase stock.
$ Pay operating expenses.
$ Purchase additional fixed assets.
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