2- Cash Budget Preparation

Activity – Prepare a Cash Budget
Visor Ltd
Visor Limited has an account with a local bank that has an overdraft facility of up to £25,000. Like all
overdrafts, this is repayable immediately on demand.
The directors of Visor Limited anticipate a significant increase in their business and would like to
refurbish the premises during January; this would cost £43,000.
Given below are some forecasts about the company’s activities for the period January to March.
January February March
£ £ £
Sales Turnover 22,000 52,000 55,000
Purchases 11,000 13,000 15,000
Staff Salaries 8,000 9,000 10,000
General Overheads 20,000 21,000 22,000
10% of each month’s sales are on a cash basis, 90% is received in the next month. In January, £30,750
will be received from December’s sales.
All material purchases are paid in the month following that in which they are incurred. In December,
£10,000 of materials was purchased.
Monthly general overheads include £3,800 depreciation of equipment (Hint: This is not a cash payment
– exclude it from the cash budget). The cash element of these overheads is paid in the month following
that in which the cost was incurred. Total general overheads in December were £18,000.
Staff salaries are paid in the month in which they are incurred.
The closing cash balance at the end of December is forecast to be £25,000.
Step 1
Prepare a monthly cash budget for the period from January to March. Below is a table to help you.
January February March
£ £ £
Income
Cash Sales
Payments from previous months sales
Total cash inflow
Expenditure
Purchases
Salaries
General overheads
Other expenses
Total cash outflow
Net cash inflow/ (outflow)
Opening cash balance
Closing cash balance
Step 2
Think about the problems and/or opportunities that have emerged from the cash budget that you
prepared. What are the urgent issues that the managers of Visor Ltd should be planning for?