Cash Budgets - Gateway

Chapter 6 Manage Budgets & Forecasts Cash Budgets Accrual GST Slides prepared by Peter Miller National Core Accounting Publications 1 Cash Budgets Forecast the businesss ability to pay its debts as and when they fall due. Enable predicted borrowing to be arranged ahead of time. Allows planning for investment of surplus funds.

Slides prepared by Peter Miller National Core Accounting Publications 2 Budgets required The following sub budgets may need to be prepared first in order to complete the Cash Budget Accounts Receivable ( Debtors ) Collections Budget. Cash Receipts Budget. Cash Payments Budget. Slides prepared by Peter Miller National Core Accounting Publications 3

GST and Cash Budgets GST must be incorporated into our budgets using either a cash or accruals basis. Cash Basis GST liability arises when the payment is received or made. The 10% GST is calculated on the final amount of cash after any discounts. Under the cash basis of accounting for the GST there are no adjustments made for discounts or bad debts. Slides prepared by Peter Miller National Core Accounting Publications 4 GST and Cash Budgets

Accruals Basis GST liability arises in the first tax period that an invoice is issued or a payment is received. Input tax credits may be claimed in the earlier part of the tax period when the invoice is issued or when the payment for the taxable supply which has occurred before an invoice is issued. In this text adjustments are recognised when the BAS is lodged. Slides prepared by Peter Miller 5 National Core Accounting Publications Accounting for GST GST received is posted to a GST

collected account. GST paid ( Input Tax Credits ) are posted to a GST paid account. The difference is remitted to or received from the tax office in the next available BAS period. In this chapter we will assume that the BAS is lodged with the ATO quarterly. Slides prepared by Peter Miller National Core Accounting Publications 6 Items not Subject to GST These include: Wages & Salaries Taxation Financial Services

Slides prepared by Peter Miller National Core Accounting Publications 7 Non Cash Items These items are not cash expenses so are not included in Cash Budgets Depreciation Discount Allowed Discount Received Bad Debts Goodwill written off Slides prepared by Peter Miller National Core Accounting Publications

8 Accounts Receivable Collections Budget A schedule of estimated receipts from debtors for a period. Example Slides prepared by Peter Miller National Core Accounting Publications 9 Accounts Receivable Collections Budget A schedule of estimated receipts from debtors for a period.

Solution Slides prepared by Peter Miller National Core Accounting Publications 10 Accounts Receivable Collections Budget A schedule of estimated receipts from debtors for a period. Example: With Discount Slides prepared by Peter Miller National Core Accounting Publications

11 Accounts Receivable Collections Budget Solution Slides prepared by Peter Miller National Core Accounting Publications 12 Cash receipts budget A cash receipts budget is a forecast of all expected receipts of a business for a period Exampl e

Slides prepared by Peter Miller National Core Accounting Publications 13 Cash receipts budget Solutio n Slides prepared by Peter Miller National Core Accounting Publications 14 Cash receipts budget Solutio

n Slides prepared by Peter Miller National Core Accounting Publications 15 Cash Payments budget A cash payments budget is a forecast of all expected payments of a business for a period. Exampl e Slides prepared by Peter Miller National Core Accounting Publications 16

Cash Payments budget A cash payments budget is a forecast of all expected payments of a business for a period. Exampl e Slides prepared by Peter Miller National Core Accounting Publications 17 Cash Payments budget A cash payments budget is a forecast of all expected payments of a business for a period. Solutio

n Slides prepared by Peter Miller National Core Accounting Publications 18 Cash Payments budget A cash payments budget is a forecast of all expected payments of a business for a period. Solutio n Bondy Corp Cash Payments Budget J anuary February $

$ Accounts payable 27,300 27,909 Insurance 2,500 Telephone 580 Electricity 320 General Offi ce Expenses 3,294 3,338 Total 33,994 31,247 GST

3,399 3,125 Offi ce wages 4,000 4,000 Sales wages 6,588 6,675 Taxation Net GST December Quarter 2,200 Total Payments $50,181 $45,047 Slides prepared by Peter Miller National Core Accounting Publications

March $ 28,519 3,425 31,944 3,194 4,000 6,850 4,500 $50,488 19 Cash Budget Format Opening Cash Balance + Receipts = Cash Available Payments = Closing Cash Balance

Or Receipts Payments = Surplus ( Deficit ) + Opening Balance = Closing Cash Balance Slides prepared by Peter Miller National Core Accounting Publications 20 Cash Budget Summary of expected receipts and payments Example 1 GST collected on a cash basis Simons expects cash receipts and payments for the next three months are: Receipts Payments Month 1

Month 2 Month 3 $15,280 $14,700 $14,300 $10,500 $14,800 $ 8,650 Opening balance of cash is $7,500. All receipts and

payments are subject to the GST ( cash basis ). Required: months. Prepare a Cash Budget for the next three Slides prepared by Peter Miller National Core Accounting Publications 21 Solution Slides prepared by Peter Miller National Core Accounting Publications 22 Exampl

e Cash Budget Collecting GST on an accruals basis Green Thumb sell plants wholesale. The company is GST registered and accounts for GST on a cash basis, submitting a quarterly BAS. 40% of their sales are for cash. Account customers normally pay as follows: 20% pay in the month of sale and earn a discount of 5% 15% pay in the month after sale and earn a discount of 2% 25% pay in the month after sale with no discount allowed 35% pay in the second month after sale with no discount allowed 5% are bad debts GST payable to the ATO for J une Quarter $15,290 Sales ( GST exclusive ) are: Actual April $55,000

May $62,000 J une $50,000 Estimated J uly $84,000 August $56,000 Sept $40,000 Required: Prepare the following for J uly to September: ( a ) Accounts Receivable Schedule ( b ) October Accounts Receivable Balance (c) ( c ) ( i ) GST liability - Cash & Credit Sales ( ii ) GST paid to the ATO ( d ) Cash Budget ( extract ) Slides prepared by Peter Miller

National Core Accounting Publications 23 Solution Accounts receivable schedule October Accounts Receivable Balance Slides prepared by Peter Miller National Core Accounting Publications 24 Solution GST liability - Cash & Credit Sales Cash Sales

GST Credit Sales GST Total Sales ( GST I ncl ) GST J uly August September $ $ $

33,600 22,400 16,000 3,360 2,240 1,600 50400 33600 24000

5,040 3,360 2,400 $84,000 $56,000 $40,000 8,400 5,600 4,000

Slides prepared by Peter Miller National Core Accounting Publications 25 Solution GST owing to the ATO Calculation of J uly input tax credit Bad debts April sales =( $55,000 x 60% x 5%) x 10% =$165 ( assume it takes 3 f ull months bef ore we recognise a bad debt ) Discount allowed = J une (($30,000x20%x5%)+($37,200x15%x2% =$41 Slides prepared by Peter Miller National Core Accounting Publications 26

Solution Cash Budget ( extract ) Note: accrual The only difference between recognising GST under a cash and basis is in the ATO amount payable/received Slides prepared by Peter Miller National Core Accounting Publications . 27 Next Chapter 7

Financial Budgets Slides prepared by Peter Miller National Core Accounting Publications 28

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