The cash payment budget, often refer to as the cash disbursement budget,
is a component of the cash budget.
It is based off data from the direct materials budget,
the direct labor budget, the manufacturing overhead budget,
the operating expenses budget, and the capital expenditures budget.
you can see that the cash payment budget, which again is part of the cash budget,
is the ninth budget completed in the master budget process.
This budget can be done separately, like I'm doing,
or as part of the larger cash budget.
Either way, we're going to use the results in the cash budget.
Here you can see a common format for the cash payments budget.
Often it just lists the items that will have cash disbursements.
Using the direct materials budget we can see the cost of materials purchased.
Let's assume for simplicity's sake that purchases are paid for in the quarter following the purchase.
So we would enter Q1 purchases of material into Q2 payment of material.
Using the direct labor budget we can see the cost of our labor.
It is unlikely employees will wait a quarter to be paid,
So let's assume that the amount owed is paid in the same quarter the costs are incurred.
So we enter Q1 costs for direct labor into Q1 payment for labor.
The amount paid for manufacturing overhead is a little more complicated than materials and labor,
because not all overhead costs are cash expenditures.
Additionally, using the matching principle, we spread prepaid taxes and insurance evenly through the year.
we spread prepaid taxes and insurance evenly through the year.
But for cash disbursement purposes we need to know in which quarter the payments will be made
So we start with a total cost of manufacturing overhead from the manufacturing overhead budget.
Then I've added back the amount of depreciation expense,
since this is not a cash expenditure.
Additionally I've added back the quarterly taxes and insurance expense
since that doesn't match hte timing of when these amounts will be paid.
Finally, I've shown the cash payments for prepaid taxes and insurance,
which I've assumed happened as follows:
Prepaid taxes $18,000 in Q1. Prepaid insurance $6,000 in Q3.
Then we can total the cash payments for manufacturing overhead and list that on the cash payment budget.
In my example let's assume that all payments are made in the quarter incurred.
The amount paid for operating expenses are calculations similar to what we just did
for the manufacturing overhead.
We start with the total cost of operating expenses from the operating expenses budget.
Then I've added back the amounts for bad debt expense and for depreciation expense,
since they're not cash expenditures.
Additionally I've added back the quarterly rent expense,
since that doesn't match that timing for when those amounts will be paid.
Finally, I've shown the cash payment for prepaid rent. Which I've assumed happens as follows:
prepaid rent $10,000 in Q1, and $10,000 in Q3.
We total the cash payments for operating expenses
and we'll list that on the cash payments budget. In my example let's assume that all the payments are made in the quarter and current
In my example let's assume that all the payments are made in the quarter incurred.
Finally, the timing of capital expenditures are listed in the quarter they incur.
This information comes directly from the capital expenditure budget.
Of course we would look to build this budget in Excel
and link the cells with the related cells from the appropriate budgets.