Budgets – Corrected exercise

Welcome to this article whose sole purpose is to help you progress with corrected exercises on the cash budget of the chapter the budgetary approach of the Operational Management subject of the BTS MCO.

If you would like to first see or review the course on the same theme, I invite you to read my article entitled The Budgeting Approach – The 9 Budgets to Master.

The corrected exercise on the cash budget also covers other budgets such as the purchases budget, the sales budget, the disbursements budget.

You will also find the following concepts: the cash flow budget and of course the cash flow budget.

Corrected exercise statement

The Lepic company operates 45 self-service stores in France. Recruited to manage a commercial unit, you are tasked by the head office with drawing up the cash flow budget for the second half of the year.

For this you have the following forecast information in thousands of euros:

The VAT budget is not taken into account

Customers generally pay as follows:

• 60% of their cash purchases
• 10% at 30 days
• 30% at 60 days per transaction.

Supplies are payable as follows:

• 15% at 30 days
• 70% at 60 days
• 15% at 90 days per transaction.

An average monthly salary of €124 should be expected. Social security contributions, approximately 000% of the salary amount, are paid on the 45th of the following month (those for June have not been paid).

Furthermore, it is specified that at the end of June:

• availability will amount to €12.
• The customer account stands at €302 to be collected at the end of July and €000 in August.
• the supplier account corresponds to €183 to be paid at the end of July, €200 in August and €98 in September.

Work to do

1. Draw up the cash flow budget.

The cash receipts budget

To create this cash receipts budget, you must take into account the amounts including tax of the various cash receipts.

These are sales as well as customer receivables (sales not yet collected).

You should also not forget the amounts that precede the current period.

1 – This is the amount of sales including tax up to 60% which are collected in cash:

• For the month of July: 655 × 1,2 × 60%
• For other months, the calculation is identical based on sales excluding tax for the month in question.

2 – This is the amount of sales including tax up to 10% which are collected within 30 days.

• For the month of August: 655 × 1.2 × 10%
• For other months, the calculation is identical based on sales excluding tax for the month in question.

3 – This is the amount of sales including tax up to 30% which are collected within 60 days.

• For the month of September: 655 × 1.2 × 30%
• For other months, the calculation is identical based on sales excluding tax for the month in question.

4 – The customer account at the end of July is valued at €302, so 000 must be indicated in the cash receipts budget. It should not be forgotten that the amounts are in thousands of euros.

5 – The customer account at the end of August is valued at €29, so 000 must be indicated in the cash receipts budget. In fact, the budget amounts are indicated in thousands of euros.

6 – This is the sum for each month. The amounts correspond to the monthly collections (monthly collections budget).

The purchasing budget

To create a purchasing budget, you must take into account the amounts including tax for the various purchases.

You have to take the purchases excluding tax and add the VAT to obtain the purchases including tax.

In the statement, it is specified that “supplies are payable…”

Procurement corresponds to purchases, so you must take into account the different deadlines and the different distributions.

So here is the purchasing budget:

1 – This is the amount of purchases paid 30 days after the commercial transaction:

• for the month of August: 430 × 1.2 × 15%
• for other months the calculation is identical based on purchases from the previous month.

2 – These are purchases including tax for the month of July and are settled in September at 70%. In fact, there is a payment 60 days after the purchase.

• for the month of September: 430 × 1.2 × 70%
• for the following months, the calculation is identical based on purchases made 2 months previously.

3 – These are purchases including tax for the month of July and settled in October at 15%. In fact, there is a payment 90 days after the purchase.

• for the month of October: 430 × 1.2 × 0.15
• for the following months, the calculation is identical based on purchases made 3 months previously.

4 – This is the sum of purchases for each month. The amounts correspond to monthly purchases (monthly purchase budget).

The budget for other expenses

To budget for other expenses, you must take into account the amounts indicated in the forecast information table.

You also need to consider salaries and social security contributions.

So here is the budget for other charges:

1 – You must take into account the amount of other charges excluding taxes and add VAT. For the month of July: 342 × 1.2

2 – Salaries are estimated at €124: you must therefore indicate “000” in the budget for other expenses. You must not add VAT to salaries.

3 – Social security contributions are assessed at 45% of the salary amount. We therefore have the following calculation for each month: 124 × 0.45

4 – This is the addition of the amounts in each column.

The disbursement budget

To create the disbursement budget, you must combine the purchases budget and the other expenses budget:

The cash budget

To create the cash flow budget, you must take the cash balance.

Next you need to differentiate between the cash receipts budget and the cash disbursements budget.

1 – This is the cash balance at the beginning of the period. This is the initial cash position of the cash budget.

2 – You must copy the amounts from the cash receipts budget.

3 – You must copy the amounts from the disbursement budget.

4 – The final cash flow corresponds to the following calculation: initial cash flow + receipts – disbursements.

5 – Resumption of the final cash balance from the previous month.

Statement 2 corrected exercise

The manager of a large specialist Jardibati store has drawn up various budgets for the 2nd quarter of N.

(1): disbursed the same month

Furthermore, we inform you that the company Jardibati carried out major works for an amount of €40 excluding tax, fully paid on May 000 N.

This investment was made possible by a loan obtained on May 2, N, repayable at a rate of €770 per month, with the first payment due in May N.

Customers pay 80% of their purchases in cash and the remainder the following month.

In March N, sales including VAT were €89. For the same period, VAT to be paid was €700, and purchases were €1 including VAT.

Amounts owed to the supplier at the end of March N payable in April: €28.

Jardibati's purchases are settled half within 30 days, the rest within 60 days.

Salaries and social security contributions are estimated at €46 per month.

The cash flow as of April 1 N was €3.

Work to do

1. Present the cash budget for the second quarter N.

Exercise 2 corrected

Purchase and sales budget:

Element	April	May	June
Excl. VAT purchases	78 750	84 500	74 000
VAT on purchases	15 750	16 900	14 800
Purchases including VAT	94 500	101 400	88 800
Sales excluding VAT	112 500	135 000	120 000
VAT on sales	22 500	27 000	24 000
Sales including VAT	135 000	162 000	144 000

Cash receipts budget:

Element	April	May	June
Counting 80%	108 000	129 600	115 200
Deferred 20%	17 940	27 000	32 400
Loan		40 000
Total	125 940	196 600	147 600

Explanations for the cash receipts budget:

For April :
counting 80%: 135 x 000%
deferred 20%: 89 x 700%

For May :
counting 80%: 162 x 000%
deferred 20%: 135 x 000%

For June :
counting 80%: 144 x 000%
deferred 20%: 162 x 000%

VAT budget:

Element	April	May	June
VAT collected	22 500	27 000	24 000
Deductible VAT on purchases	15 750	16 900	14 800
Deductible VAT on fixed assets		8 000
Deductible VAT on charges	2 250	2 700	2 400
VAT payable	4 500	-600	6 200
VAT to be paid	1 024	4 500	0

Explanations for the VAT budget:

For April :
VAT collected: 112 x 500%
Deductible VAT on purchases: 78 x 750%
Deductible VAT on charges: 11 x 250%
VAT payable: 22 – 500 – 15
VAT to be paid: as stated

For May :
VAT collected: 135 x 000%
Deductible VAT on purchases: 84 x 500%
Deductible VAT on charges: 13 x 500%
VAT payable: 27 – 000 – 16 – 900
VAT to be paid: VAT to be paid for the month of April

For June :
VAT collected: 120 x 000%
Deductible VAT on purchases: 74 x 000%
Deductible VAT on charges: 12 x 000%
VAT payable: 24 – 000 – 14 – 800
VAT to be paid: VAT to be paid negative in May therefore “zero”

Disbursement budget:

Element	April	May	June
Purchases 30 days	36 777	47 250	50 700
Purchases 60 days		36 777	47 250
Works		48 000
Loan repayment		770	770
Salaries and social charges	46 000	46 000	46 000
Payables	28 450
Current charges	13 500	16 200	14 400
VAT to be paid	1 024	4 500	0
Total	125 751	199 497	159 120

Explanations for the disbursement budget:

For April :
Purchases 30 days: 73 x 554
Salaries: as stated
Accounts payable: as stated
Current charges: as stated
VAT to be paid: according to VAT budget

For May :
Purchases 30 days: 94 x 500
Purchases 60 days: 73 x 554
Works: 40 x 000
Loan repayment: as stated
Salaries: as stated
Accounts payable: as stated
Current charges: as stated
VAT to be paid: according to VAT budget

For June :
Purchases 30 days: 101 x 400
Purchases 60 days: 94 x 500
Loan repayment: as stated
Salaries: as stated
Accounts payable: as stated
Current charges: as stated
VAT to be paid: according to VAT budget

Treasury Budget:

Element	April	May	June
Initial treasury	3 650 (1)	3 839	942
+ Collections	125 940	196 600	147 600
– Disbursements	125 751	199 497	159 120
Final treasury	3 839	942	-10 578

(1): according to statement

Final cash: 3 + 650 – 125

Final Cash Flow = Initial Cash Flow + Cash Inflow Budget – Cash Outflow Budget