Gr 12 Accounting - Budgets - Activity 1

Summary

In this educational video, Mrs. Brimakum guides viewers through understanding budgeting, particularly the differences between a cash budget and a projected income statement. She emphasizes the importance of excluding non-cash items from a cash budget and focuses on a debtors' collection schedule for a stationery business. The script covers calculating cash sales, estimating bad debts, and predicting sales trends, offering practical advice on improving debt collection policies.

Takeaways

• 📚 The importance of understanding the theory behind budgeting, specifically the difference between a cash budget and a projected income statement, is emphasized.
• 💼 A cash budget focuses on receipts and payments, excluding non-cash items such as discounts allowed, discounts received, and bad debts.
• 🔍 Non-cash items like bad debts are instead accounted for in the projected income statement, which shows income and expenses on a monthly basis.
• 🥔 The activity revolves around creating a debtors' collection schedule for Gna Stationers, highlighting the need to predict debtor payments over time.
• 💳 Credit sales are a significant portion of total sales, and understanding the payment trends of debtors is crucial for accurate budgeting.
• 📉 The debtors' payment trend includes percentages that pay in the month of sale, the following month, and the second month, with a provision for bad debts.
• 📊 The calculation of cash sales and credit sales is detailed, showing how to determine the expected payments from debtors and the cash flow from sales.
• 📋 Completing a debtors' collection schedule involves estimating the percentage of debt collected each month and accounting for discounts and bad debts.
• 💡 The script provides a step-by-step guide on how to fill out the collection schedule and calculate cash sales, bad debts, and outstanding amounts.
• 📉 Predicting sales trends, such as an increase in January followed by a decline, is based on the nature of the business and seasonal demands.
• 🛑 The data's collection policy is critiqued, with suggestions for improvement, such as charging interest on overdue accounts and following up with debtors.
• 💬 A closing quote by an unknown author encourages maintaining enthusiasm despite facing failures, tying into the broader theme of resilience in business management.

Q & A

What is the main focus of Chapter 10 in the transcript?

The main focus of Chapter 10 is on budgeting, specifically the difference between a cash budget and a projected income statement.

What are non-cash items in the context of a cash budget?

Non-cash items are transactions that do not involve the immediate receipt or payment of cash, such as discount allowed, discount received, and bad debts.

What is the purpose of preparing a debtors' collection schedule?

The purpose of preparing a debtors' collection schedule is to estimate what the business can expect to receive from its debtors on a monthly basis, considering credit terms and payment trends.

Why is it necessary to calculate cash and credit sales separately?

It is necessary to calculate cash and credit sales separately because cash sales directly affect the cash budget, while credit sales are used to complete the debtors' collection schedule and affect the projected income statement.

How does the discount allowed affect the cash budget?

The discount allowed is an expense to the business and affects the projected income statement, not the cash budget, as it is a non-cash item.

What is the significance of calculating bad debts in the budgeting process?

Calculating bad debts is significant as it helps in estimating the amount of debt that will not be collected and should be written off, which is a non-cash item affecting the projected income statement.

How does the provided information on Gna Stationers relate to the debtors' collection schedule?

The information on Gna Stationers provides actual and budgeted sales figures and debtors' payment trends, which are used to work out the expected collections and bad debts for the debtors' collection schedule.

What is the expected percentage of credit sales to be collected in the month of sale according to the script?

According to the script, 50% of credit sales are expected to be collected in the month of sale, with a 5% discount if paid within the same month.

How does the business anticipate sales trends for stationery from January to March?

The business anticipates an increase in sales from December to January due to the back-to-school demand for stationery, followed by a decline from February to March as the demand decreases.

What advice is given regarding the debtors' collection policy in the script?

The advice given includes charging interest on overdue debts, sending out statements before the end of the month, and following up with outstanding debtors to improve the collection process.

What is the estimated percentage increase in sales from December to January according to the calculations in the script?

The estimated percentage increase in sales from December to January is 20%, based on the calculations provided in the script.