 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 list components of the master budget and compile the cash budget. All right. So real quick, we're going to go through the components of the master budget. They need to be done in this order. We've taken a look at most of these up until we get to the cash area. So we have to do the sales budget first. Once we have the sales budget, we know what we're going to produce. Then we do the production budget. Then we can do the direct materials budget, the direct labor budget, and the overhead budget, as well as the capital expenditure could be done at this time and the selling and administrative. 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 474 400 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 give 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 very 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 times 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 can 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 where 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 $40,000 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 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 timeframe. 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 25461. 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.