Master Budget Preparation for Earrings Unlimited
How can we prepare a master budget for Earrings Unlimited?
What are the detailed schedules that need to be included in the master budget for the upcoming second quarter?
Master Budget Preparation for Earrings Unlimited
To prepare a master budget for Earrings Unlimited, we need to include detailed schedules such as:
- a. Sales budget, by month and in total
- b. Schedule of expected cash collections, by month and in total
- c. Merchandise purchases budget in units and dollars, by month and in total
- d. Schedule of expected cash disbursements for merchandise purchases, by month and in total
- e. Cash budget, by month and in total
- f. Budgeted income statement for the three-month period ending June 30, using the contribution approach
- g. Budgeted balance sheet as of June 30
Earrings Unlimited, a distributor of earrings, needs to prepare a master budget for the upcoming second quarter to ensure efficient financial management. By creating detailed schedules for sales, cash collections, merchandise purchases, cash disbursements, cash budget, income statement, and balance sheet, the company can effectively plan and monitor its financial activities.
The sales budget will outline the expected sales for each month and in total for the quarter, providing a clear revenue projection. The schedule of expected cash collections will detail the cash inflows from sales, aiding in cash flow management. The merchandise purchases budget will determine the quantity and dollar amount of earrings to be purchased each month, ensuring adequate inventory levels.
By preparing a cash budget, Earrings Unlimited can track its cash inflows and outflows, determine any borrowing needed to maintain the minimum cash balance, and have a clear picture of its financial liquidity. The budgeted income statement will calculate the company's operating income using the contribution approach, deducting variable expenses from the contribution margin.
Lastly, the budgeted balance sheet will provide a snapshot of the company's financial position as of June 30, considering the projected cash balance, accounts receivable, inventory, accounts payable, and resulting equity and liabilities. By maintaining the minimum cash balance requirement of $51,000 and addressing any shortfalls through bank borrowings, Earrings Unlimited can ensure financial stability and growth.