Question

Assuming level production throughout the year, and assuming receivables are collected in two equal installments over the two months subsequent to the sales period, developing the related areas of the cash budget requires which of the following steps?

A. Calculate beginning accounts receivable balance.

B. Calculate COGS.

C. Estimate monthly net cash flow and bank borrowing or repayments.

D. Calculate ending inventory.

Answer 1

To develop the cash budget, you need to calculate the beginning accounts receivable balance, COGS, estimate monthly net cash flow and bank borrowing or repayments, and calculate the ending inventory.

Step-by-step explanation:

To develop the cash budget, the following steps are required:

1. Calculate the beginning accounts receivable balance, which is the amount of money owed to the company by customers at the start of the budget period.
2. Calculate the cost of goods sold (COGS), which is the total cost of producing or purchasing the goods sold during the budget period.
3. Estimate the monthly net cash flow and bank borrowing or repayments, which involves projecting the cash inflows and outflows for each month of the budget period.
4. Calculate the ending inventory, which is the value of unsold goods at the end of the budget period.