Cash Budget &

Administrative and
Operational
Expenses
Mark Dave R. Saan
BBM-MBA
Entrepreneurship Class

Objective
After studying this unit we should be able to:

Understand importance of sales

budget and control in sales
management
Understand the Difference between
Administrative and Operational
Expenses

Cash Budget
An estimation of the cash inflows and outflows for
a business or individual for a specific period of
time. Cash budgets are often used to assess
whether the entity has sufficient cash to full fill
regular operations and/or whether too much cash
is being left in unproductive capacities.
Source: Investopedia

Cash Budget
A cash budget is a prediction of future cash
receipts and expenditures for a particular time
period, usually in the near future. The cash flow
budget helps the business determine when its
income will be sufficient to cover its expenses
and when the company will need to seek
outside financing.
Source: Boundless. Components of the Cash
Budget.Boundless Finance. Boundless, 21 Jul.
2015. Retrieved 18 Aug. 2015 /

Why Cash Budget are being

prepared???

1. Assist with the identification of

when commitments are due

ensures that money is available at that time

important business able to meet commitments
as they
fall due

if debts are not paid on time poor reputation will

affect credit rating of business

2.Reveals period of excess funds

business should avoid idle funds left in
bank accounts
low interest returns on these accounts
identifying such periods allows
scheduling of investments into short
term money markets, fixed deposits,
governments securities.

3. Adjustment for seasonal

fluctuation can be made
some business experience high/low
sales in certain parts of the year

4. Budgets are a form of control

Target set assists with the
monitoring of employee work
investigation into the difference
between actual and budgeted
figures should reveal why
differences have occurred

HOW TO CREATE A CASH BUDGET

There are three main components
necessary for creating a cash budget.
They are:
Time period
Desired cash position
Estimated sales and expenses

Time Period
The first decision to make when preparing a
cash budget is to decide the period of time
for which your budget will apply. That is, are
you preparing a budget for the next three
months, six months, twelve months or some
other period? In this Business Builder, we
will be preparing a 3-month budget.
However, the instructions given are
applicable to any time period you might
select.

Cash Position
The amount of cash you wish to keep on hand
will depend on the nature of your business, the
predictability of accounts receivable and the
probability of fast-happening opportunities (or
unfortunate occurrences) that may require you
to have a significant reserve of cash.
You may want to consider your cash reserve in
terms of a certain number of days sales. Your
budgeting process will help you to determine
if, at the end of the period, you have an
adequate cash reserve.

Estimated Sales and Expenses

The fundamental concept of a cash
budget is estimating all future cash
receipts and cash expenditures that
will take place during the time period.
The most important estimate you will
make, however, is an estimate of
sales. Once this is decided, the rest of
the cash budget can fall into place.

Administrative and Operational

Expenses

Operational Expenses
-are costs expended by a small company by each of
its different departments to produce a product or
services for customers. Examples of these
departments include manufacturing, advertising
and sales. Small companies have a variety of
necessary operating expenses. One example is
paying for the rent on a building. This space is
necessary to produce the product or services for
the business. Another example is the
manufacturing equipment. This equipment is
needed to produce the product being sold or to
assist in the services being provided to customers.

Administrative Expenses
-are costs incurred by a small business on a
more general basis and not associated with a
specific department. These expenses are
grouped with individuals who perform nontechnical support activities for a small business,
including secretaries and receptionists. One
example of an administrative expense would be
the salaries and benefits for secretaries and
receptionists. Another example would be the
office supplies, telephone bills and postage
used for the business.

Projected Revenue &

Sales Budget

Sales Budget
A sales budget is an estimate of sales for a future
accounting period. Sales budgets are often divided
into first, second, third and fourth fiscal quarter
estimates.
It is a key function of sales management. It
involves estimating future level of revenue and
selling expenses, and consequently the profit
contribution made by the sales function
The outcome of sales budget can be seen in two
form of documents:
1. The sales budget
2. The selling expenses budget

 Sales Budget- reflects the targeted

sales revenue
Sales Expenses- budget shows the
expenses necessary to reach the
targeted sales revenue

Projected Revenue
(Forecasted Revenue)
1. Projected revenue refers to the estimated money
a company will generate during a specific period.
The projections often refer to monthly, quarterly
or annual accounting periods. Companies project
revenue using a combination of research and
internal knowledge.
. For example, a business might review its previous
sales for the same period, contact customers to
ask about their future purchasing plans, review
trade association research that projects consumer
trends and ask sales staff what they estimate they
will sell during the period

Item
Cash balance

Budget

Actual
5,000

Variance
5,000

0%

Cash Receipts:

Cash sales

20,000

22,000

110%

Collection of accounts
receivable

15,000

13,500

90%

40,000

40,500

101%

Other income
Total cash

Cash payments:

15,000

15,000

100%

7,200

9,400

130%

Other direct expenses

500

500

100%

Advertising

500

1,000

200%

1,500

1,400

93%

500

500

100%

5,000

7,500

150%

30,200

35,300

116%

9,800

5,200

53%

Raw materials (or

inventory)
Payroll

Selling expense
Administrative expense

Plant and equipment

expenditures
Other payments
Total cash expenses

Cash surplus (or deficit)

Lists of References
Investopedia
Boundless. Components of the Cash
Budget.Boundless Finance.
Boundless, 21 Jul. 2015. Retrieved 18
Aug. 2015 /
http://www.accountingtools.com/
http://dictionary.cambridge.org/
Google Dictionary

Thank You for your

ATTENTION!!!