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       Balance sheet budgets are used by managers to plan financing, investing, and cash objectives for the firm. The balance sheet budgets shown for the company Colt Manufacturing, Inc. in the following sections are the cash budget and the capital expenditures budget.

              CASH BUDGET

           The cash budget is one of the most important elements of the budgeted balance sheet. The cash budget presents the expected receipts (inflows) and payments (outflows) of cash for a period of time. Information from the various operating budgets, such as the sales budget, the direct materials purchases budget, and the selling and administrative expenses budget, affects the cash budget. In addition, the capital expenditures budget, dividend policies, and plans for equity or long term debt financing also affect the cash budget. The following shows the monthly cash budget for January, February and March 2008, for the company Colt manufacturing, Inc.  

             Estimated Cash Receipts

          Estimated cash receipts are planned additions to cash from sales and other resources, such as issuing securities or collecting interest. A supporting schedule can be used in determining the collections from sales. To illustrate this schedule, assume the following information:

                Accounts receivable, January 1, 2000 ......................................................................   $270,000

                                                    January           February           March    
                Budgeted sales           $1,080,000       $1,240,000       $970,000

           The company Colt Manufacturing, Inc. expects to sell 10% of its merchandise for cash. Of the remaining 90% of the sales on account, 60% are expected to be collected in the month of the sale and the remainder in the next month. Using this information we prepare the schedule of collection of sales, shown in the following table. The cash receipts from sales on account are determined by adding the amounts collected from credit sales earned in the current period (60%) and the amounts accrued from sales in the previous period as accounts receivable.

    Colt Manufacturing, Inc.
      Schedule of Collections from Sales
    For the Three Months Ending March 31, 2008
    January February
    Receipts from cash sales:

         Cash sales (10% X current month's sales - Note A)




    Receipts from sales on account:

        Collections from prior month's sales (40% of previous month's credit sales - Note B)



        Collections from current month's sales (60% of current month's credit sales - Note C)



    Total receipts from sales on account

                                  NOTE A:  $108,000 = $1,080,000 X 10%
                                                    $124,000 = $1,240,000 X 10%
                                                      $97,000 =    $970,000 X 10%

                                  NOTE B:  $370,000, given as January 1, 2008 Accounts Receivable balance.
                                                    $388,800 = $1,080,000 X 90% X 40%
                                                    $446,400 = $1,240,000 X 90% X 40%

                                  NOTE C:  $583,200 = $1,080,000 X 90% X 60%
                                                    $669,600 = $1,240,000 X 90% X 60%
                                                    $523,800 =    $970,000 X 90% X 60%

             Estimated Cash Payments

          Estimated cash payments are planned reductions in cash from naufacturing costs, selling and administrative expenses, capital expenditures, and other sources, such as buying securities or paying interest or dividends. a supporting schedules can be used in estimating the cash payments for manufacturing costs. Assume the following information for the company Colt Manufacturing, Inc.:

                  Accounts payable, January 1, 2000 ......................................................................   $190,000

                                                       January           February           March    
                Manufacturing costs       $840,000           $780,000          $812,000

           Depreciation expense on machines is estimated to be $24,000 per month and is included in the manufacturing costs. The accounts payable were incurred for manufacturing costs. The company expects to pay 75% of the manufacturing costs in the month in which they are incurred and the balance in the next month. Using this information, a schedule of payments has been prepared as shown in the next table:
    Colt Manufacturing, Inc.
      Schedule of Payments for Manufacturing Costs
    For the Three Months Ending March 31, 2008
    Payments of prior month's manufacturing costs

         25% X previous month's manufacturing costs (less depreciation) - Note A





    Payments of current month's manufacturing costs

             75% X current month's manufacturing costs (less depreciation) - Note B


    Total payments

    NOTE A:  $190,000, given as January 1, 2008 Accounts Payable balance.
                                                    $204,000 = ($840,000 - $24,000) X 25%
                                                    $189,000 =
    ($780,000 - $24,000) X 25%

                                  NOTE B:  $612,000 = ($840,000 - $24,000) X 75%
                                                    $567,000 = ($780,000 - $24,000) X 75%
                                                    $591,000 = ($812,000 - $24,000) X 75%         

             Completing the Cash Budget

          To complete the cash budget for the company Colt Manufacturing, Inc., assume that the following is expected by the company:

                   Cash balance on January 1  ......................................................................   $280,000
                   Quarterly taxes paid on March 31  ..........................................................   $150,000
                   Quarterly interest expense paid on January 10  .....................................     $22,500
                   Quarterly interest revenue received on march 21  ..................................     $24,500
                   Sewing equipment purchased  ...................................................................   $274,000

             In addition, monthly selling and administrative expenses, which are paid in the month incurred, are estimated as follows:

                                                                             January           February           March    
                Selling and administrative expenses       $160,000           $165,000          $145,000

           We can compare the estimated cash balance at the end of the period with the minimum balance required by operations. Assuming that the minimum cash balance for Colt Manufacturing, Inc. is $340,000, we can determine any expected excess or deficiency.
           The minimum cash balance protects against variations in estimates and for unexpected cash emergencies. For effective cash management, much of the minimum cash balance should be deposited in income-producing securities that can be readily converted to cash. U.S. Treasury Bills or Notes are examples of such securities.
           The  following table show the cash budget for the company Colt Manufacuring, Inc.:

    Colt Manufacturing, Inc.
    Cash Budget
    For the Three Months Ending March 31, 2008
    January February
    Estimated cash receipts from:

         Cash sales

         Collections of accounts receivable
         Interest revenue

                 Total cash receipts
    $1,182,400 $1,091,700

    Estimated cash payments for:

          Manufacturing costs
          Selling and administrative expenses
          Capital additions


          Interest expense

          Income taxes

                 Total cash payments
    Cash increase (decrease)
    Cash balance at beggining of month
    Cash balance at end of month
    Minimum cash balance
    Total payments


           The capital expenditures budget summarizes plans for acquiring fixed assets. Such expenditures are necessary as machinery and other fixed assets wear out, become obsolete, or for other reasons need to be replaced. In addition, expanding plant facilities may be necessary to meet increasing demand for a company's product.

            The useful life of many fixed assets extends over long periods of time.  In addition, the amount of the expenditures for such assets may vary from year to year . It is normal to project the plans for a number of periods into the future in preparing the capital expenditures budget.  The following table shows a five-year capital expenditures budget for Colt Manufacturing, Inc.

    Colt Manufacturing, Inc.
      Capital Expenditures Budget
    For Five Years Ending December 31, 2008
    Machinery - Cutting Department

    Machinery - Sewing Department 274,000
    $560,000 200,000

    Office Equipment
    $560,000 $480,000 $420,000


              The budgeted balance sheet estimates the financial condition at the end of  a budget period. The budgeted balance sheet assumes that all operating budgets and financing plans are met. It is similar to a balance sheet based on actual data in the accounts. For this reason, a budgeted balance sheet is not illustrated for the company Colt Manufacturing, Inc. If the budgeted balance sheet indicates a weakness in financial position, revising the financing plans or other plans may be necessary. For example, a large amount of long-term debt in relation to stockholders' equity might require revising financing plans for capital expenditures. Such revisions might include issuing equity rather than debt.


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