ACCT 2102 1st Edition Lecture 27 Outline of Last Lecture I Budgets II Types of Budgets a Operating b Financial c Manufacturing d Merchandising III Operating Expenses Budget Outline of Current Lecture IV Operating Expenses Budget Continued V Cash Budgets Current Lecture The Master Budget Part II Chapter 9 IV Operating Expenses Budget Continued Merchandising Budgets 1 Sales Budget Sales Revenue August September October November December 250 000 200 000 216 000 237 600 250 000 2 Purchases Budget Sales Revenue Cost of Sales Cost of EI Cost of BI Cost of Purchases Aug 250 000 150 000 52 000 55 000 147 000 Sept 200 000 120 000 52 960 52 000 120 960 Oct 216 000 129 600 54 256 52 960 130 896 Nov 237 600 142 560 55 000 54 256 143 304 Dec 250 000 150 000 55 000 95 000 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Cost of Sales 60 x Sales Revenue Cost of EI 40 000 10 x next month s Cost of Sales Cost of BI 40 000 10 x current month s Cost of Sales Operating Expenses Budget The next step in the budgeting process for both a manufacturer and a merchandiser is to prepare the Operating Expenses Budget University Apparel s budgeted monthly operating expenses are as follows Salaries and wages 20 000 per month paid on the last day of the month Sales commission 10 of current month sales paid on the 10 th of the following month October 10 216 000 November 10 237 600 Lease expense 10 000 per month paid on the 1st of the current month Depreciation expense on equipment and leasehold improvements 48 000 per year 48 000 12 months 4 000 month Utilities internet phone expense 3 000 per month paid on the 15 th of the following month Insurance expense 12 000 per year paid semi annually in November and May 12 000 12 months 1 000 month Bad debt expense 2 of credit sales Bad debt expense is recognized in the month of sale Cash sales represent 30 of University Apparel s total sales Therefore 70 represent sales on account October 70 2 216 000 November 70 2 237 600 Calculate the operating expenses for October and November Calculate the cash operating expenses for October and November 1 Operating Expenses Salaries Comm Lease Deprec Utilities Insurance Bad Debt Total Operating Expenses October 20 000 21 600 10 000 4 000 3 000 1 000 3 024 62 624 November 20 000 23 760 10 000 4 000 3 000 1 000 3 326 65 086 2 Cash Operating Expenses Salaries Comm Lease Deprec Utilities Insurance Bad Debt Total Cash Operating Expenses October 20 000 20 000 10 000 non cash exp 3 000 non cash exp 53 000 November 20 000 21 600 10 000 non cash exp 3 000 6 000 non cash exp 60 600 Commission is different from commission in operating expenses table Why Commission is paid on the 10th of the following month therefore your commission paid in October is from September sales October commission paid 10 x 200 000 Sept Sales Rev November commission paid 10 x 216 000 Oct SR Depreciation and Bad Debt Expense are NON CASH expenses Therefore they will never contain any value in a cash operating expenses table At this point in the budgeting process a Budgeted Income Statement could be also prepared V Cash Budgets After the operating budgets are prepared both manufacturers and merchandisers begin preparing the financial budgets These budgets focus on expected cash inflows and cash outflows The Capital Expenditure Budget is prepared by determining the dollar amount and timing of capital investments The Cash Collections Budget answers the question What are the company s expected cash inflows for the period What will company collect receive deposit The Cash Payments Budget answers the question What are the company s expected cash outflows for the period What will the company pay The Combined Cash Budget answers the question What is the company s expected cash balance at the end of the period Ending Cash Beginning Cash Collections Payment Cash sales represent 30 of University Apparel s total sales All other sales are made on account and carry payment terms of net 30 days Historically 80 of credit sales are collected in the month after sale 18 are collected two months after sale and the remaining 2 are never collected Purchases are paid for in the month of purchase All other information related to the cash operating expenses was included on the previous page University Apparel plans to spend 35 000 in November to upgrade its computers This information was found on the company s capital expenditure budget The company wants to maintain a 10 000 cash balance at month end The company plans to start October with 12 000 of cash and has no outstanding debt 1 Prepare the cash collections budget for October and November 2 Prepare the cash payments budget for October and November 3 Prepare the combined cash budget for October and November 1 Cash Collections Budget Cash Sales 30 A R 70 1st month 80 A R 70 2nd month 18 Cash Collections October Oct 216 000 30 Sept 200 000 70 80 Aug 250 000 70 18 208 300 November Nov 237 600 30 Oct 216 000 70 80 Sept 200 000 70 18 217 440 October 130 896 53 000 0 183 896 November 143 304 60 600 35 000 238 904 October 12 000 November 36 404 2 Cash Payments Budget Purchases Purchases Budget Operating Exp Cash Exp Budget Capital Expenditures Cash Dividend Pay Down Debt Cash Payments 3 Combined Cash Budget Beginning Cash Collections 208 300 217 440 Payments 183 896 238 904 Ending Cash 36 404 14 940 November Beginning Balance comes from previous month s ending balance At this point in the budgeting process a Budgeted Balance Sheet could be also prepared