You have been asked to prepare a cash budget for the next quarter, January through March, for Jahanara Fashions. They have provided you with the…

CA Intermediate · Financial Management and Strategic Management · RTP · September 2026
You have been asked to prepare a cash budget for the next quarter, January through March, for Jahanara Fashions. They have provided you with the following information: a. Sales are expected to be: ₹400,000 in January, ₹400,000 in February, and ₹600,000 in March. All sales will be in cash. b. The estimated purchases are: ₹380,000 in January, ₹360,000 in February, and ₹450,000 in March. Payments for purchases will be made after a lag of one month. Outstanding on account of purchases in December last are ₹350,000. c. The rent per month is ₹10,000 and the partners' personal withdrawal per month is ₹25,000. d. Salaries and other expenses, payable in cash, are expected to be: ₹25,000 in January, ₹20,000 in February, and ₹30,000 in March. e. They plan to buy furniture worth ₹40,000 on cash payment in January. f. The cash balance at present is ₹6,000. Their target cash balance, however, is ₹15,000. What will be surplus/ deficit of cash in relation to their target cash balance?

Suggested Answer and Working Notes:

The projected cash inflows and outflows for the quarter, January through March, is shown below: Month December (₹) January (₹) February (₹) March (₹) Inflows: Sales collection 4,00,000 4,00,000 6,00,000 Outflows: Payment to sundry creditors (December purchases paid in January, January purchases paid in February, etc.) 3,50,000 3,80,000 3,60,000 Rent 10,000 10,000 10,000 Drawings 25,000 25,000 25,000 Salaries & other expenses 25,000 20,000 30,000 Purchase of furniture 40,000 Total outflows 4,50,000 4,35,000 4,25,000 Given an opening cash balance of ₹6,000 and a target cash balance of ₹15,000, the surplus/deficit in relation to the target cash balance is worked out below: January (₹) February (₹) March (₹) 1. Opening balance 6,000 (50,000) (85,000) 2. Inflows 400,000 400,000 600,000 3. Outflows 450,000 435,000 425,000 4. Net cash flow (2 - 3) (50,000) (35,000) 175,000 5. Cumulative net cash flow (1+4) (44,000) (85,000) 90,000 6. Opening balance + Cumulative net cash flow (1+4) (44,000) (79,000) 96,000 7. Minimum cash balance required 15,000 15,000 15,000 8. Surplus/(Deficit) (6-7) (59,000) (94,000) 81,000

Topics: Part-A: Financial Management

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