When many people first have to prepare a cash budget or a cash flow statement they start out thinking that they're easy to do. Half way through, though, a mist seems to settle over their eyes and they become impossible to do.

The problem usually comes down to matters such as the layout, the balances brought down and carried down and the debtors and creditors.

Most things to do with the cash itself are simple to account for: the day we receive the cash, we put it into the statement; the day we pay some cash, we put that in the statement ... that's pretty well all there is todo with the cash itself.

OK, so the cash itself is simple to deal with but there is still a lot more to be worried about I can hear you screech! Fear not, though, help is at hand on this very page.

We'll start by taking a look at the layout and contents of a cash budget overall. Then we'll have a look at an alternative layout, remembering that whatever the layout, they should all give the same answer! Finally, we'll spend some time solving all of your debtor and creditor worries!

Overall Layout of a Cash Budget

Here we have a cash budget statement that starts with the cash balance brought down (b/d) from last month, last week or yesterday (this is the cash we had in the safe or our purse or wallet at the end of the previous period). Then we add the cash receipts to the balance b/d to give us the total amount of cash we then have available to us: this is the amount of money we can spend.

However, we usually have bills to pay, so we take away from the cash available the amount of money we have to pay for our bills, utilities, materials, labour and so on. Starting with the balance b/d adding the receipts and taking away the payments leaves us with the balance carried down (c/d); and this is what we have left at the end of the month ready for use at the start of the following month.

Alternative Layout of a Cash Budget

In addition to dealing with debtors and creditors, which we will deal with shortly, there is the key issue of alternative layouts. Here we see an alternative layout that has exactly the same information in as the previous example but they are presented in a different order.

Most importantly, though, the balances c/d at the end of each month are the same whichever layout we use. Just compare this new layout and the balances c/d with the previous layout we saw above.

Dealing with Balances b/d and c/d

There is a really simple thing to remember about balances in accounting statements like a cash budget statement: the balance carried down at the end of today has to be the balance brought down at the start of tomorrow. Just have a look at our first cash budget again, but this time with some nifty animation graphics to show exactly what's what: what we see here is that the balance c/d at the end of Month 1 has been highlighted: follow the animation that starts with Month 1's balance c/d and see that this balance c/d automatically becomes the balance b/d at the start of Month 2 ... exactly as we said in the previous paragraph. This relationship is automatic: remembering this means that once we have found the balance c/d at the end of Month 1, we automatically put it into the balance b/d space for Month 2. This logic applies to whatever layout we are dealing with. Here's the alternative layout with the balances highlighted and arrowed.

More Detailed Look at the Logic of the Cash Budget

Let's go back to the very first picture and add a couple more features that should help us to appreciate the logic of the layout of all cash budget statements. What we have added is a feature that shows that receipts are always plus and payments are always minuses. However, balances both brought and carried down can be either plus or minus: sometimes we may have an overdraft, so the balance c/d will be a minus, negative, and at other times the balance c/d will be positive. The Legend picture confirms what all of this means.

Why not redraw the alternative cash budget layout with these new features yourself to confirm what it all means?

Those [not so] dreaded Debtors and Creditors!

The numbers you'll find in this section are designed to be linked to the pictures and explanations we've already seen on this page: with one difference. The examples that follow show six month budgets rather than their three month cousins we've just seen: nothing to worry about, just showing something a little bit different ... that's life!

Debtors first of all: debtors are people and organisations that are our customers and which are allowed time to pay their debts. Similarly, creditors are people and organisations who buy things from others on credit terms: taking their time to pay. Usually, debtors and creditors are given specific deals: pay within 10 days and earn a discount of 2%, pay in full withing 20 days, pay after 30 days and pay a penalty of 1%: and so on. Our job is to translate the terms and conditions of allowing and taking credit into cash budget format.

For this business, the sales plans and debtors details are as follows:

Credit Sales

Month 1	Month 2	Month 3
24,000	22,000	30,000

The business has three classes of debtor: Debtors 1, 2 and 3 and they pay their debts according to this table

Payment History of Debtors

Which Debtors	When They Pay	How Many of Them Pay at This Time
Debtors 1	within the month of sale	50%
Debtors 2	in the month after sale	30%
Debtors 3	in the second month after sale	20%

So, in Month 1, Debtors 1 pay their debts. This means that the payment received from Debtors 1 in Month 1 is

24,000 * 50% = 24,000 * 0.5 = 12,000

For Month 2, Debtors 2 pay their share of the sales in Month 1

24,000 * 30% = 24,000 * 0.3 = 7,200

For Month 3, Debtors 3 pay their share of the sales in Month 1

24,000 * 20% = 24,000 * 0.2 = 4,800

We can see all of this in the following picture.

Please note, if it's difficult to read this table on your screen, print it out and it should be easy to read.

The following picture spells out by using pointers exactly what we've just seen for Months 1 and 2.

Creditors now: well, there's not a lot to say about creditors that we haven't really already said about debtors. Study what follows and make sure it all makes sense.

For this business, the purchase plans and creditors details are as follows:

Payment History for Creditors

Month 1	Month 2	Month 3
20,000	21,250	22,000

The business has three classes of creditor: Creditors 1, 2 and 3 and we pay our debts according to this table

Payment History for Creditors

Which Creditors	When We Pay	How We Pay at This Time
Creditors 1	within the month of sale	50%
Creditors 2	in the month after sale	30%
Creditors 3	in the second month after sale	20%

Praise me! I've kept the percentages the same as they were for the debtors.

Now, fill in the Creditors Budget yourself before you check your answer against mine. Here's a blank Creditors Budget form for you to fill in: print it out or copy it out.

Creditors Budget

	Month
Creditors Budget	1	2	3	4	5	6
Purchases				25,000	23,000	20,000
Creditors 1
Creditors 2
Creditors 3
Total Payment to Creditors

Go on, have a go ... go on! You know you want to.

Now you've filled in the form, you can have a look at my answer. Go to the answer from here. When you get there you'll see another question for you to try for yourself ... all on your own. Good luck!