Accounting for Managers Cash Budget and Income

Question: Describe about the Accounting for Managers of Cash Budget and Income. Answer: Introduction Present report is based on forecasting of cash budget and income statement of Company X Ltdfor the month July to December. It will include description of its significance to the managerial parties. Part A Cash budget Company X Ltd. Cash Budget on monthly basis for the month July to December Month July August September October November December Opening Cash Balance 50000 50000 50000 50000 50000 Paid up share Capital 400000 Receipt from debtors 1000000 Cash Receipt from sales 400000 500000 500000 700000 1200000 1700000 Total cash receipts 800000 550000 550000 750000 1250000 2750000 Fixed asset purchased 240000 Cash paid to creditors 600000 600000 200000 200000 200000 200000 Labour Cost 300000 300000 300000 300000 300000 300000 Overhead Cost 230000 230000 230000 230000 230000 230000 Payment to creditors 400000 Total cash paid 1370000 1130000 730000 730000 730000 1130000 Closing Balance -570000 -580000 -180000 20000 520000 1620000 Financing Borrowed from Bank 620000 630000 230000 30000 0 0 Repayment 409250 1100750 Interest 60750 13385 Cash balance ending 50000 50000 50000 50000 50000 505865 Interest calculations Interest for November Interest for December July 620000 620000*15%*4/12 31000 (620000-409250)*.15*1/12 2634.375 August 630000 630000*15%*3/12 23625 630000*15%*1/12 7875 September 230000 230000*15%*2/12 5750 230000*15%*1/12 2875 October 30000 30000*15%*1/12 375 30000*15%*1/12 30000*15%*1/12 60750 13384.375 Working note 1 Labour Cost Particular Amount Total Cost 1800000 Period 6 month Cost Per Month 300000 Working note 2 Overhead Particular Amount Total Overheads 1380000 Period 6 month Overhead Per Month 230000 Part B Income statement Budgeted Profit Loss at the end of the period (Amount in $) Income Sales 60,00,000 Expenses Purchases 26,00,000 Labour Cost 18,00,000 Overhead 13,80,000 Interest 74,135 Depreciation (2000*6) 12,000 Profit before Income Tax 133,865 Budgeted profit at the end of the period 133,865 Part C Usefulness of Cash Budget Budget Profit Loss Account Cash Budget Budgets are based on estimated data; therefore they do not present actual data. The result of budgets is dependent on the accuracy or the fairness of data and the sources that have been used for the preparation of budgets. Cash Budget mainly consists of two areas, which are sources of cash and application of cash for a specific period. It is used to ascertain whether the operations of the company will be able to provide sufficient cash to meet the projected cash requirement. In case it is not able to meet the requirement, it gives an early alert to management for finding additional sources of funding. The data of cash budget are used in other budgets also (Hope and Fraser, 2013).The details regarding the operation, financing activities and investing activities can be easily received from it. The results of cash budget are helpful in financing budget, debt and both interest income and interest expense (Lee Jr and et.al. 2012). As from the available data the management gets information regarding surplus and deficit of cash. In case a large, unusual cash balance is presented in cash budget then these balances are dealt in financing where suitable investments are indicated for them (Oduro and et.al. 2013). In cash budget, only cash expenditures are considered i.e. the nature of expenditure and the period in which they accrue does not matter. The objective with which it is prepared to ascertain the cash required for any project or the additional amount required for any project (Warren, 2015.). Budget Profit Loss Account It is majorly used in analysing the financial result of the project of a company i.e. whether they are reasonable or not. As it is compiled with other budgets, the accuracy may be dependent on the realism of the input made available to the budget model (Ebnther, 2015). With the implication of budgeted profit and loss account, the management gets to know the reason of loss if any and changes can be done before practical application of projects (Cox, 2014). The information regarding the major expenses and the additional income from surplus cash is availed by the management through this budget. The main factor which is to know before actually investing in a project is to know that whether the project is financially viable or not and it is known through budgeted profit and loss account. The advantage that can be availed from this budget is that an analysis can be made regarding the project appropriately about the future profit and loss if we input the appropriate data (Bierman Jr and Smidt, 2012.). Conclusion In accordance with the present report, it can be concluded that with the implication of budgeted profit and loss account, the management gets to know the reason of loss if any and changes can be done before practical application of projects. Further, cash budget assist in determining requirements of business. References Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. Routledge. Cox, P., 2014. Master budget project: cash budget macro. Strategic Finance, 96(4).P.54. Ebnther, S., 2015. Economic Capital for Market Risk. Available at SSRN 2628918. Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press. Lee Jr and et.al., 2012. Public budgeting systems. Jones Bartlett Publishers. Oduro and et.al., 2013. Cash Budget Imperative Element of Effective Financial Management. Warren, K., 2015. Time to look again at accrual budgeting. OECD Journal on Budgeting, 14(3), P.113.