What is the Bangladesh standard on Audit(BSA-300) ? Describes in details

Corporate practice bd

A cash budget is a financial tool used by businesses and individuals to plan and manage their cash inflows and outflows over a specific period, typically on a monthly or quarterly basis. The primary purpose of a cash budget is to forecast and control the cash flow within a given time frame, allowing the entity to make informed financial decisions and ensure that there's enough cash available to cover expenses and financial obligations.

Creating a cash budget involves estimating various sources of cash inflows and categorizing them into different categories, such as sales revenue, loans, investments, and other sources. On the other hand, cash outflows are projected by categorizing expenses like operating costs, salaries, interest payments, loan repayments, and other expenditures.

The process of creating a cash budget typically follows these steps:

1. Estimate Cash Inflows: Determine the various sources of cash coming into the business or individual, such as sales revenue, investments, loans, and any other income.

2. Categorize Cash Outflows: Identify and categorize all the expected cash expenditures, including operating expenses, fixed costs, variable costs, loan payments, interest payments, taxes, and any other financial obligations.

3. Set Time frame: Determine the period for which the cash budget will be created, such as monthly, quarterly, or annually.

4. Calculate Net Cash Flow: Calculate the difference between total cash inflows and total cash outflows for each period. This provides a clear picture of whether the entity will have a positive or negative net cash flow.

5. Analyze and Adjust: Analyze the cash budget to identify periods of potential cash surpluses or shortfalls. Adjust the budget by making changes to inflow and outflow estimates to align with financial goals.

6. Monitoring and Reporting: Regularly monitor actual cash flows against the budgeted amounts and make adjustments as necessary. This helps in managing cash flow effectively and adapting to changing circumstances.

A well-constructed cash budget serves several purposes:

• Planning: It helps businesses and individuals plan their financial activities and allocate resources effectively.
• Forecasting: By estimating cash flows, it allows for anticipating potential cash shortages or excesses, aiding in proactive financial decision-making.
• Control: A cash budget provides a mechanism to control spending and manage financial resources more efficiently.
• Borrowing and Investing: A cash budget helps determine if and when external borrowing or investing is necessary.
• Risk Management: It helps mitigate the risk of running out of cash and facing financial difficulties.

Creating a cash budget is an essential practice for maintaining financial stability and achieving long-term financial goals. It allows individuals and businesses to stay in control of their finances and make informed decisions to navigate through various economic conditions.

What is cash budget?

A cash budget is an estimation of the cash flows of a business over a particular period of time. Cash budget needed for a weekly, monthly, quarterly, or annual budget. Its budget insured the management cash sufficiency when it’s needed to for a specified time of June.

Advantages or required for cash budget:
01.Its estimated available cash balances for when it's needed
02.Increase assets capability
03.Effective planning process ensured timely manner.
04.Proficiency worked performed by the management
05. Monthly overview the cash position

06.Overview cash flow statement

Some special consideration

01.If interest charge quarterly  @ 3% of Tk.70,000 what is the interest 2nd quarter.

Ans:Tk.70,000*3%={(2,100*4)/4}*2=Tk.4,200

Let,s start with Practical Example - (CMA-Dec-2014)

Practical Example. (01) (Try yourself)

Jahan company ,a office supplies specialty store, prepares its master budget on Quarterly basis .Following data is given for the first quarter is as follows-

         A.  Asset                                                                                            Amount (TK.)           

               Cash                                                                                                 48,000     

                A/R                                                                                                   2,24,000    

               Inventory                                                                                           60,000         

Building& equipment net of (Dep)                                                                3,70,000

            Total assets                                                                                           7,02,000     

 Liabilities & equity

Accounts payable                                                                                            93,000

 Paid up capital                                                                                                5,00,000

 Retain earning                                                                                                1,09,000

Total Liabilities & Equity                                                                               7,02,000

 B.  Actual sales December Budgeted sales for the next four month are as follows

December(actual)                                                                                             Tk.2,80,000

January                                                                                                              Tk.4,00,000

 February                                                                                                           Tk.6,00,000

March                                                                                                                 Tk. 3,00,000

April                                                                                                                    Tk. 2,00,000

C. Sales are 20% for the cash & 80% on credit .All  payments on credit sales are collected in the month following  the sale.The A/R  at December 31 are result of December credit sales.

D.The company gross margin is 40% of sale where COGS 60% of sales.

E.Each month ending inventory equal 25% of the following month cost of goods sold.

F.one half of a months inventory purchase paid for the  month of purchase & other half paid the following month.

G.Monthly budgeted expense as follows

 Salaries and wages                                                                              TK.27,000 per month

 Advertising                                                                                          TK.70,000 per month

  Shipping                                                                                                    5% of sales

  Others expense                                                                                          3% of sales

Depreciation for the quarter Tk.42,000 including new equipment purchase

H.During February the company purchase new copy machine Tk. 1700 cash.  during march other equipment will be purchase for  cash at cost Tk.84,500

I.during January the company will declared and pay Tk.45,000 in cash dividends

J. The company must maintain a minimum cash balance of Tk.30,000.All borrowing is done at the beginning of a month and all  repayment are made at the end of a month. borrowings and repayment of principle must be in multiple of Tk1,000. Interest is paid only at the time of payment of principle. The annual interest rate is 12%.

Requirement

01. Prepare a cash budget for the first quarter

02.Prepare an absorption costing income statement for the quarter ending march-31

03.Prepare a budgeted Balance sheet as on march- 31

 Practical Example -(02)  (CMA-MAY-2023-old)

 The ABC company  has requested a Tk. 40000, 90 day  loan from its bank to help meet cash requirement during the quarter .Since The ABC company has  experience difficulty in paying off its loan in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. in response to this request the following data have been assembled.

a.on July 1 the beginning of the  third quarter, the company will have a cash balance of Tk.44,500

b.actual sales for the last two month and budgeted sales for the third quarter follow (all sales are on account)

  May (actual)                                                                                                                  Tk.250000

  June (actual)                                                                                                                  Tk.300000 

  July (Budgeted)                                                                                                             Tk.400000

  August (Budgeted)                                                                                                       Tk.600000           

  September(budgeted)                                                                                                 Tk.320000

Past experience shows that 25%      of month sales are collected in the month of sales.70%  in the month following the sales, and 3% in the second month following sale. the remainder is un collectible

(C) budgeted merchandise purchase & budgeted expense for the third quarter are given below

Amount .TK.	July	August	September
Merchandise purchase	240000	350000	175000
Salaries & wages	45000	50000	40000
Advertising	130000	145000	80000
Rent payment	9000	9000	9000
Depreciation	10000	10000	10000

merchandise purchase  are paid full during the month following purchase, Accounts payble for the nerchandise purchase on june30. which will be paid in july, trotal tk.180000

d. Equipment costing Tk.10000 will be purchase for cash during july

E.In preparing cash budget assume that tk.40000 loan will be made in july & repaid in september with interest tk.1200

Requrement:-

01.Prepared a schedule of expected cash  collection for July ,August,semester & for the quarter end total

02.Prepare cash budget by month total for the third quarter

03.If the company needs minimum cash balance of Tk.20,000 to start each month, can the loan be repaid as planed? explain.

 Ans:Req-01 

  Schedule of expected cash collection

Particulars	July	August	September	Quarter
From Account receivable
May sales
250000*3%	7,500			7,500
June sales
300000*70%	2,10,000			2,10,000
300000*3%		9,000		9,000
From budgeted sales
July sales
400000*25%	1,00,000			1,00,000
400000*70%		2,80,,000		2,80,000
400000*3%			12,000	12000
August sales
600000*25%		1,50,000		1,50,000
600000*70%			4,20,000	4,20,000
September sales			80,000	80,000
320000*25%
Total cash collection	3,17,500	4,39,000	5,12,000	12,68,500

Ans:Req-02

 Cash budget

Particulars	July	August	September	Quarter
Beginning cash balance	44,500	28,000	23,000	44,500
Add  receipts
Collection from customers	3,17,500	4,39,000	51,200	12,68,500
Total cash available	3,62,000	4,67,000	5,35,000	13,13,000
Less cash disbursement
Merchandise purchase	1,80,000	2,40,000	3,50,000	7,70,000
Salaries & wages	45,000	50,000	40,000	1,35,000
Advertising	1,30,000	1,45,000	80,000	3,55,000
Rent payment	9,000	9,000	9,0000	27,000
Equipment purchase	10,000	0	0	10,000
Total cash disbursement	3,74,000	4,44,000	4,79,000	12,97,000
Excess (deficiency)of cash available over disbursement	(12,000)	23,000	56,000	16,000
Financing
Borrowing	40,000	0	0	40,000
Repayment	0	0	(40,000 )	(40,000)
Interest	0	0	(12,000)	(12,000)
Total finance	40,000	0	(41,200)	(12,000)
Ending cash balance	28,000	23,000	14,800	14,800

 Ans:Req-03

If the company needs $20,000  minimum cash balance to start each month ,then the loan cannot be repaid in full by September,30 .if the loan is repaid in full ,the cash balance will drop to $14,800 on September 30, as shown above.Some portion of the loan balance will have to be carried over to the October.