When preparing the cash budget:Group of answer choicesit is not possible to estimate bank balances at the beginning of a month.the estimated bank balance at the end of one month becomes the estimated balance at the end of the next month.none of the options are true.the estimated bank balance at the end of one month becomes the estimated balance at the start of the next month.
Question
When preparing the cash budget:Group of answer choicesit is not possible to estimate bank balances at the beginning of a month.the estimated bank balance at the end of one month becomes the estimated balance at the end of the next month.none of the options are true.the estimated bank balance at the end of one month becomes the estimated balance at the start of the next month.
Solution
The correct answer is: the estimated bank balance at the end of one month becomes the estimated balance at the start of the next month.
Here's why:
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When preparing a cash budget, the first step is to estimate the bank balance at the beginning of the month. This is usually the closing balance of the previous month.
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Next, you add the estimated cash inflows for the month. This includes all the cash you expect to receive, such as sales revenue, interest income, etc.
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Then, you subtract the estimated cash outflows for the month. This includes all the cash you expect to pay out, such as expenses, loan repayments, etc.
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The result is the estimated bank balance at the end of the month.
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This estimated end-of-month balance then becomes the estimated starting balance for the next month, and the process repeats.
So, the statement "the estimated bank balance at the end of one month becomes the estimated balance at the start of the next month" is true.
Similar Questions
Draw up a cash budget for A. Aiman showing the balance at the end of each month, fromthe following information for the six months ended 30 December 2023:a) Opening cash (including bank) balance on 1 July 2023 $3,600b) Production Units:2024 2025March April May June July Aug Sep Oct Nov Dec Jan720 810 900 960 1,050 1,110 1,140 1,020 930 780 750c) Raw materials used in production cost $15 per unit. Of this, 90 per cent in the month ofproduction and 10 per cent in the month after production.d) Direct labour costs of $24 per unit are payable in the month of production.e) Variable expenses are $6 per unit, payable 40 per cent in the same month as production and60 per cent in the month following production.f) Sales at $60 per unit:2024 2025Feb Mar Apr May June July Aug Sep Oct Nov780 600 960 870 1,200 900 1,050 1,200 1,170 1,200Debtors to pay their accounts three months after that in which sales are made.g) Fixed expenses of $1,200 per month payable each month.h) Machinery costing $6,000 to be paid for in September 2024.i) Will receive a legacy of $7,000 in November 2024.j) Drawings will be $900 per month.
A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances Budget AmountsCash $ 98,000 Accounts Receivable 188,000 Sales $ 840,000Cash disbursements 860,000Depreciation 29,000Ending accounts receivable balance 218,000What is the expected cash balance of the company at the end of the coming month? (CIA adapted)Multiple Choice$54,000$48,000$84,000$18,000
All of these are ways in which the cash budget can assist decision making, except:Group of answer choicesidentifying suitable times for the purchase of non-current assets.assisting with the planning and use of borrowed funds.showing the assets and liabilities owned by the firm.identifying periods of expected cash shortages or surpluses.
If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the quarter and the ending cash balance for the year is the same as the ending cash for the quarter. (Enter your answers as 1st, 2nd, 3rd or 4th.)
The budget that sets out the expected future cash receipts and cash payments during the budget period is referred to as the:Group of answer choicescapital budget.cash budget.purchases budget.program budget.
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