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.