Cash Budget

The Cash Budget
Cash budgeting is vital to survival. The firm must have enough cash on hand to pay
its bills and employees on time.   Too little cash leads usually to insolvency. On the
other side cash on hand earns low return on assets.  Excess cash should be put in
some form of investment (think trading securities, available‐for‐sale ‐‐ ask Apple).
Organizations consequently strive to manage their cash balances.
The cash  budget  forecasts cash needs  and the amount of cash the firm expects
to have availableto make anticipated payments for invoices and payroll. Most
firms establish guidelines for determining the safe minimum and maximum
amount of cash to have on hand.Cash budgets indicate when the cash account
will fall short of the minimum needs and additional financing is needed.  Cash
budgets also show when the firm might have excess cash to invest (Section 12 of the
The Budgeted Income Statement
The budgets predicting revenues and expenses can be used to prepare a proforma
(budgeted) income statement. This proforma income statement which is used to set
expectations and measure performance, also to keep investors informed of the
company plans
Exercise #13: Prepare an operating income statement for revenues, COGS, Gross
Profit, SG&A for the firm (ignore interest income/expense, gains/losses, and
taxes; see section 13 of the spreadsheet).
Budgeted Balance Sheet
The next step is to use the information previously calculated to prepare the
proforma balance sheet (section 14 of the spreadsheet).  The previous
calculations include cash, accounts receivable, raw materials and finished goods
inventory, accounts payable.  There is no change in fixed assets other than
accumulated depreciation, which you can calculate (ie, no purchases or sales of
fixed assets).  Also, with the net income on the income statement, you can
calculate the change in owner’s equity (there are no dividends, no stock sales or
treasury stock purchases).
Budgeted Cashflow Statement
With the beginning and ending balance sheets, also the income statement and
information on depreciation, you can prepare a cashflow statement, using the
indirect method.  There were no investing or financing transactions (Section 15
of the spreadsheet).
The Assignment
First, review and confirm the calculations in the spreadsheet below, section by
section, starting with the input variables and ending with the financial
statements.   See where the numbers in each section come from and how they
flow to following sections.
Second, using the new input variables I will provide, recalculate each section and
provide the ending financial statements.  The ending balance sheet should
balance should tie with the income statement and the cashflow statement.  As a
group, provide me with a hard copy or a .pdf of your updated spreadsheet.
Include the names of those in the group.