 Hello, in this lecture, we're going to talk about the master budget part three. So we're going to go into the cash budget if you haven't looked at the one and two parts you may want to go back and take a look at those first before we go through to the cash budget. At the end of this, we will be able to first a word from our sponsor. Well, actually, these are just items that we picked from the YouTube shopping affiliate program. But that's actually good for you because these aren't things that we're just given to us from some large corporation, which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased, and use ourselves. Bayer Dynamic, not sure if I said that right, but this is the DT770 Pro 250 OHM studio reference closed back headphones. I wear headphones basically every day for a large part of the day. They are important to me. Therefore, I've gone through many different kinds of headphones. 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And then we can take a look at the cash budget. So this is where we're at at this point. We're taking a look at the cash budget. We're going to be bouncing back to some of these budgets we've done prior in order to compile the cash budget. Then we can take a look at the balance sheet budget, the income state budget and the statement of cash flows after that point. And that's what we'll do next time. So just to recap, we have the sales budget. All these budgets by the way are ones that we're going to come back to and we're going to pull numbers from these budgets. So we're going to be bouncing back from the cash budget to these budgets in order to compile the cash budget. So we started off in part one, we had the sales budget. Then we had the production budget. And then we went to the raw materials budget, the direct labor budget. And then we had the factory overhead budget step five, the selling expense budget step six, and the general administrative step seven, we're going to be using these numbers for the cash budget. All right, so we're going to take a look at some quick cash calculations before we get into the actual cash budget. We're going to look at the total cash receipts from customers. And we're going to be using the sales budget part one of our budgets in order to see what that number would be. All right, so we have the total budgeted sales that we said we're just pulling these numbers over was the 494 400 for July was the 474 100 for August. And it was the 482 400 for September. And then what we need to do is figure out how much of those sales are on account, how much of it was for cash versus the sales that we're going to receive AR for. In a book problem, they would have to tell you in some way in this way, we're going to get some kind of percentage to have the cash sales portion. In real life, we would of course have to make some kind of estimate how much of the sales will be in cash, how much will be on account, it will vary greatly depending on the type of industry and company that we are in. So but the key here is that we'll have a timing difference, of course, and we need to figure out when the cash is being received. And that's what we are doing here. So we're going to say that the cash sales are 148 320, which is of course the 494 400 times 30%. We have the 141 120 and the 144 720. So these are going to be the cash that's received for the sales made in July. So that's what we have at this point. Sales on credit then would be the 494 400 minus the 148 320 or of course, this number times 70%. Because if this was 30, then this would be the time 70. And that would be the difference. So we have this number here. And this number here, these are going to be the sales on credit. The assumption that we're going to make is that the sales on credit are going to be collected in the following month. So if we made it on credit in July, we're going to collect the money in August. Again, that's an assumption we're making in this problem. The problem will have to give you an assumption in real life. We'd have to know what the assumptions are. The assumptions could be very simplified or they can be very complex. We could assume that we're going to get paid in multiple months after the sales date. But in this case, we're going to assume that any sales made in one month is going to be collected in the following month. All right. So now we're going to take a look at the total cash receipts from customers using what we just calculated the cash budget piece up here. This isn't the total cash budget, but it's part of our calculation we just looked at. So we got the current months sales. That's what we're bringing down. Here's the current months sales on cash. That's the cash sales. And then we're going to figure out the collections of receivables. So we're going to try to figure out how much cash we're receiving for July. We're going to say that everything that we had in receivables, which we're assuming happened last month, June is going to be collected the next month. That's the assumption that we are making. Some problems could have much more complex assumptions that could assume that we're going to get so much this month and then so much the month after. And we'd have to figure out what the cash flow would be in relation to the sales we make on account. In this case, we're going to say that we received all of that in July. And then in August, we're going to receive everything that we sold on in July. And then in September, we're going to receive everything we sold in August on account. That's the assumption we're making. Then we can figure out the cash flow for these months. Then we can add them up. This is the cash sales. This is what we received on account. We didn't make the sales this time. We got the sales from last time. That's what we're getting our cash receipts. That's what we got this month. These are on account. There's our cash receipts and so on and so forth. And then we can use these numbers to plug into our cash budget. All right. So cash budget, we're going to start off with a cash balance that we started with. That's going to be the 40,000. We're going to get that from the balance sheet from the prior period. So this is the balance sheet from the prior period. We had 40,000 to begin with. So there's the 40,000. And then we're going to add to that the cash receipts from customers. And of course, we just calculated that the cash receipts from customers in July was the 495.68 that we just calculated. So there's that number. And there's our total cash receipts. So we got the 40 plus the 495.68 total cash receipts. Now we need to figure out the cash disbursements. That's usually the longer process. We're going to have to jump back to our prior budgets in order to calculate this out. So we start off with the payments for raw materials. Now this one, we're actually going to get right from the balance sheet over here because we're going to make a similar assumption for the payments for raw materials, meaning we're going to pay for raw materials on account. And we're making the assumption that we're going to pay for it. And then, I mean, we're going to buy it on account and then pay for it next month. That's going to be the assumption. Again, we could have, you know, more simplified assumptions, meaning we just pay for it this month, or we can have more complex assumptions in some problems saying that we're going to pay the payable over a certain amount of time frame. We're going to assume that in this problem, that anything that we buy in terms of material, we buy it all on account in one month and then we pay it off next month. Therefore, in the month of June, we bought all the materials, everything in accounts payable, it's four materials that we then pay off in July. So that's why that number is going to go here. So it's going to be one month off, similar concept to what we had with the receivables. Then we're going to have the payments for direct labor. We're going to bounce back to the direct labor budget. Here's the direct labor for July from step four of the budget. And if we pull that number over, there's that number here. Then we're going to go to the payments for variable overhead. Once again, we're going to jump back to our variable overhead budget that we have already calculated up in step five. And the variable overhead is here. So we're just taking the variable portion, you might be saying, why aren't we taking the total portion? Because the fixed portion in this case, I believe was depreciation, not a cash item. Therefore, not on the cash budget. All right, so there we have the 25, 461. Then we're going to have the sales commission and the sales salaries, which we're going to bounce back to the selling and expense budget. So here's the sales commission, the sale salary, we could have combined them into just selling expenses here, but we're going to break them out in our cash budget. So we broke those out separately. Here, those are there. Then we're going to have the general and administrative expenses. Once again, we're going to jump back to our step seven where we calculated the general and administrative. We're going to look at the salaries. Later, we're going to see where that note is calculated as well. Okay, so there is our general and administrative that we pulled over. And then all this other stuff are going to be other areas that we haven't put a prior budget to. One's going to be dividends. Are we going to pay out dividends to the shareholders? And we're going to have to make an assumption on that. We have the loan interest here. So we have two loans out at this point. We're assuming that the interest rate is 0.01 for a month, you know, not a yearly interest rate for like a monthly interest rate. So we're saying this 12,000 here, 12,000 times 0.01. That's where this 120 is. We're paying 120 cash on that. And then we've got the loan of 500,000 times 0.01, which we also saw on the general administrative expense. And so there's that 5,000 there. Purchase of equipment. We don't have anything in July that we're estimating, but that's another thing that we'd have to think about. Are we purchasing equipment for cash? The cash portion of the purchase of equipment. Anything that we financed, of course, wouldn't be on the cash budget. Okay, so then if we added all this up, I won't do the calculator. But if we added all this up, we would then come out to the cash disbursements of the 427.177. And then if we subtracted out these two, then we would have the cash receipts up here of 535.68 minus the 427.177. And that's going to give us 103.391. Now I'm going to make another assumption that we commonly do in a problem, commonly do in practice. And that's going to be that we want to maintain a minimum balance of 40,000. That's going to be an assumption that we're going to make in this particular problem. And if we receive more than that, if we're above the 40,000 each month, we're going to pay off the line of credit. So we have this line of credit. That's what the short-term loan is. We're basically saying, hey, if we dip under 40,000, take out a loan, we've made a line of credit in order to do that, to have some security there. And if we go over that, pay that amount of 40,000, then let's pay off the short-term loan. We're over that amount. We're going to pay off the short-term loan 12,000. And then if we calculate our ending balance, we then have the 530, 568 minus the 427, 177 minus the 12,000. And we have the 91, 391 now. Okay, so that 91, 391 is the ending balance of July, which will be the beginning balance of August. That's where we're going to start in August. Then we're going to go through the same process again. So we'll jump through a little bit faster here, same ideas though. We've got the cash receipts from customers. I won't go back and pull that, but we're going to pull it from the same place we pulled this. And then if we add these two up, we've got the total cash available. Then we're going to go through our disbursements. So we got first payments for raw materials. Now, this number here, we got from our balance sheet last time, because remember, there's a timing difference. This time, we're going to have to bounce back to our raw materials because even though we are in August, remember, the assumption is that in a cash flow, we're going to all the purchases we made in July, we're going to pay for in August. So that's why this number here is what we're going to pay for in August. And we have to jump back here and pull that number. So just be careful there that we're always kind of a month off here because we're talking about cash flow, which is different than purchases when we purchased it. All the rest of it's going to be the same. So same, this is coming from the same area, we have to jump back, same area to jump back and pull these same numbers out. So same process in these items here. And then we're going to say we have dividends. So this problem is going to make an assumption that we did pay dividends, or we're going to pay dividends, we're planning on paying dividends in August. So that's going to be this 10,000 that we would have to add to our budget or assumption cash dividends in this case. And we don't have the interest on the loan because we paid it off last time. And we still have the 5000 interest on the loan term loan. And then if we added all these up, if we added all these up, we would get to the 445,060. And then if we subtract this out, the 578,591 minus the cash disbursements 445,060, we come out to the 133,531. And of course, we don't have to pay off the loan, we're over our minimum balance of 40. So we're not going to have any loan adjustment there. And we could just pull that number down. And that's our ending balance for the month of August, that then will be, of course, the beginning balance for September. So here's the beginning balance for September, same process, we'll go through it even a bit faster. So we're going to pull all these numbers over, this came from the same place as this, if we add these two up, we then come up with this, the 607,531, then we're going to have the disbursements. Once again, this is going to come from the same place that we pulled this out, just remember that you got that timing difference in terms of when we received it, as opposed to when we purchased it, these are just going to be pulled over in the similar fashion, same all the way down, we don't have the dividends this time, because that's going to be a separate assumption, we're going to have to make book problems, going to have to give it to us real life, we're going to have to make the assumption, no interest on the short term loan, we still have the 5000 on the long term loan. And now we're going to assume that we had a purchase of equipment of 130,000. So we're going to assume that we're going to purchase equipment in September, 130,000. That 130 only represents the cash disbursement because we're talking about the cash disbursements here. So we have that item. And then if we add all these up, then we're adding all these up. We're getting the 575,691. And that's going to be a preliminary balance of 31,840. And then we're going to have an adjustment because that 31,840 is below the 40,000 minimum we want to have. Therefore, we're going to need a loan of 8,186 so that this 31,840 can come up to that minimum balance we want of 40,000. Okay, so there's our three months. If we total this up just to see what the total for the three months would be, just be careful. If you do something like this, you got to remember that we're starting off at the beginning of the three month period. So we're not adding these three up. We're saying, okay, we're starting off at the 40,000 at the beginning of July. And then we're doing the total, for the total three month period, then we're going to add these three up. And then if we add this plus this, we come out to the 1,491,768. And then we can add these three columns up all the way down. So we're adding these three columns up all the way down. If we sum all these up, then we come up to the 1,447,928. If we subtract this number minus this number, the receipts minus the disbursements, 43,840. And we had the total adjustments, which is the 12 minus the 8,160 because we took out a 12,000. We paid off the 12,000 loan and then we took out another 12,000 loan here. So this is actually a subtraction problem. And we brought this out. And that brings our ending bounce to the 40,000, the 43,840 minus the 3840. So these are broken out per month. This is broken out for the total quarter.