404 Accounting: Business Reporting for Decision Making
Cash budget Statement of expected future cash receipts and cash payments.
Chart of accounts Detailed listing/index that guides how transactions will be classified in the financial
reporting system.
Master budget Set of interrelated budgets for a future period.
Participative style of budgeting Targets and budgets are arrived at by discussion and negotiation
between senior management and unit managers.
Performance management Setting targets in other than just financial terms (e.g. customer service,
corporate governance, management techniques, human resource management).
Schedule of receipts from accounts receivable (debtors) Schedule calculating the cash receipts from
credit sales or fees generated.
Strategic planning Process relating to the longer term planning (often three to five years) of the
entity’s activities, including issues such as expansion plans and radical product/service development.
Variance Difference between budgeted costs and actual costs.
APPLY YOUR KNOWLEDGE 15 marks
The accountant for Roadrunner Food Services is preparing its cash budget for November and December
- The accountant, Ross Leon, has collected the following information regarding expected credit
sales and expected purchases of inventory on credit.
September October November December
Credit sales $170 000 $180 000 $190 000 $210 000
Credit purchases 125 000 95 000 140 000 155 000Ross has analysed the accounts receivable records for the past few years and has determined that cus-
tomers normally pay 60 per cent in the month of sale, 30 per cent in the month following the sale, and
8 per cent in the second month following sale. The remaining 2 per cent is considered a bad debt and
uncollectable.
Foods R Us, the only supplier to Roadrunner Food Services, offers a 4 per cent discount if its cus-
tomers pay by the 15th day of the following month. Ross always takes advantage of this discount. Cash
payment for operating expenses are expected to be $85 000 per month for November and December. The
expected cash balance on 1 November is $10 000.
Required
a. Explain to the owner of Roadrunner Food Services why a cash budget is important for
the business. 3 marks
b. Prepare a cash budget for the months of November and December 2018. 8 marks
c. Ross would like to purchase a new vehicle in December. Based on your cash budget what
recommendations would you make regarding this purchase? The cost of the vehicle is
$40 000. 4 marksSelf-evaluation activities
9.1 From the following data for Omagh Services, complete a schedule of receipts from accounts
receivable for the three months ending 30 June 2018.
Actual Estimated
February March April May June
Credit sales $134 000 $126 000 $108 000 $110 000 $128 000