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Module 8.1.2: Cash Disbursements and Budgeting

Mar 14, 2025

Cash Disbursements and Budgeting

Overview

  • Focus on cash disbursements (outflows) for costs.
  • Discussed types of costs: materials, labor, and overhead.
  • Transition to creating a cash budget.

Cash Disbursements for Materials

  • Cash outflows correspond to material purchases each quarter.
  • Beginning Accounts Payable:
    • Start of quarter one: $5,400 (from previous year).
  • Payment Policy:
    • Pay 50% of purchases in the current quarter.
    • Remaining 50% paid in the subsequent quarter.
    • Quarter four purchases partly paid next year.
  • Quarterly Payments:
    • Quarter 1 total: $32,784 (includes beginning balance and 50% of Q1 purchases).
    • Quarter 2 total: $55,659.
    • Similar approach for quarters 3 and 4.

Cash Disbursements for Labor Costs

  • Payments are made in the quarter wages are earned.
  • No Beginning Wages Payable:
    • Employees fully paid by end of previous year.
  • Quarterly Payments:
    • Quarter 1 cost: $108,750, paid in full within the quarter.
    • Same principle for subsequent quarters.
  • Simpler schedule compared to materials.

Cash Disbursements for Overhead

  • Similar to labor, overhead costs paid in quarter incurred.
  • Quarterly Payments:
    • Cash payment corresponds directly to projected overhead costs.
  • Total payments calculated for each quarter and annually.

General Notes

  • Cash flows associated with projected costs typically in the form of outflows.
  • Important for cash budgeting to understand payment timings.

Conclusion

  • Detailed schedules can be made for various costs (materials, labor, overhead, selling, and administrative).
  • Transition to creating a comprehensive cash budget after understanding inflows and outflows.