Cash Budget

To illustrate the cash budget, lets extend the ABT example by assuming the
following:
A. ABT requires a $100,000 minimum cash balance for the end of each
quarter.
On
December 31, 2009, the cash balance was $120,000.
B. Money can be borrowed and repaid in multiples of $100,000. Interest is
12
percent
per year. Interest payments are made only for the amount of the
principal
being
repaid. All borrowing takes place at the beginning of a quarter, and all
repayment
takes place at the end of a quarter.
C. Half of all sales are for cash; half are on credit. Of the credit sales, 70
percent
are
collected in the quarter of sale, and the remaining 30 percent are
collected
in
the
following quarter. The sales for the fourth quarter of 2009 were $2
million.
D. Purchases of materials are made on account; 80 percent of purchases
are
paid
for
in
the quarter of purchase. The remaining 20 percent are paid in the
following
quarter.
The purchases for the fourth quarter of 2009 were $500,000.
E. Budgeted depreciation is $200,000 per quarter for overhead.
F. The capital budget for 2010 revealed plans to purchase additional
equipment
to
handle increased demand at a small plant in Nevada. The cash outlay
for the equipment, $600,000, will take place in the first quarter. The
company plans to finance the acquisition of the equipment with
operating cash, supplementing it with short-term loans as necessary.
G. Corporate income taxes are approximately $600,000 and will be paid
at
the
end
of
the fourth quarter (refer to Schedule 11).
Given the preceding information, the cash budget for ABT is shown in
Schedule
12
(all
figures are rounded to the nearest thousand).

Cash outflows from operations

There are four types of cash outflows from operations: purchases of direct materials,
payments for labor, expenditures on manufacturing overhead, and outflows for marketing
and administration costs.