Lesson 5: Production and Cash Budget Flashcards
a schedule which provides information regarding the number o units that should be produced over a given accounting period based on expected sales targeted level of ending inventories.
production budget
steps to calculate a production budget
set the time frame and product; perform beginning inventory; operate the sales forecasting; determine planned inventory; calculate the required production
the target level of ending inventories of the fourth quarter is the same as
the target level ending inventories for the ENTIRE year
and the beginning inventory for the FOLLOWING year
the beginning inventory of the first quarter is the same as
the beginning inventory for the ENTIRE year
and the ending inventory of the PREVIOUS YEAR
formula for required production in units
expected sales + target ending inventories - beginning inventories
what is in the heading of the product budget
(COMPANY NAME)
Production Budget (In Units)
For the Year Ending, December 31, 20XX
what are the rows in the production budget
projected sales; target level of ending inventories; total; less: beginning inventories; required production
the
cost of production can be estimated especially if the company
has
developed a standard production cost per unit
an estimation of the cash flows of a business over a specific period of time.
cash budget
the cash budget can be
weekly, monthly, quarterly, and annually
to prepare a cash budget…
assumptions have to be made
the assumptions for the cash budget are based on
historical performance of the company plans of the management
A cash budget shows the
expected cash receipts and disbursements for an accounting period
cash budgets can be prepared on a
monthly or quarterly basis for a year
This includes collections
from receivables, proceeds
from loans, or issuance of new
shares of stocks and
advances from stockholders.
cash receipts
This section includes payments
to suppliers and other service
providers, payments for loans,
and cash dividends.
cash disbursements
This is computed by deducting cash disbursements
from the collections for the period. -This provides
information regarding the amount of excess cash or
cash deficit for the period.
net cash flow for the period
how to calculate the net cash flow for the period
deducting cash disbursements from the collections for the period
the amount off cash
that management wants to maintain at all
times given its present level of operations,
stability of cash flows, and the
macroeconomic and political conditions.
target cash balance
what are the types of reasons for holding cash
primary and secondary
primary reasons for holding cash is for
transaction and compensating balance purposes
secondary reasons for holding cash is for
precautionary and speculative purposes
This is the most important part of the cash
budget where the possible funding
requirements are shown on a cumulative
basis
cumulative excess cash OR funding requirements
This part of the cash budget is very important in planning
because
if the management can estimate the amount of cash they will need in the future, they can identify the possible sources of cash
Planning the possible sources of cash in advance will save the
company
financing costs and unnecessary stress for managers
If the company has excess cash, then management can
decide where to invest the excess funds to generate more investment income
what is in the heading of the cash budget
(COMPANY NAME) Cash Budget
For the Year Ending December 31, 20XX
rows in the cash budget
collections; quarter of sale; a quarter after sale
payments; purchases; cash operating expenses; income taxes; loan payment; interest expense; total payments;
net cash flow for the period; cash balance, beginning; cash balance without financing; target cash balance; cumulative excess cash (funding requirements)
what is not included in the cash budget
depreciation expense
why is the depreciation expense not entered in the cash budget
it is a non-cash experience and does not entail any cash outflow
the income tax for the quarter should be listed in
the following quarter
since they are paid after the quarter is done
e.g. the income taxes for quarter 1 should be reported in quarter 2
