The Golden Oranges Nursery, which provides facilities for pre-school children on a commercial basis, is preparing its cash budget for next year. A profile of the estimated revenues and expenses for the first four months of the financial year is as follows:

 

June July August September

€ € € €

Revenue:

Fees due for payment 64,000 66,000 50,000 68,000

 

Costs:

Wages 15,000 15,000 11,000 15,000

Purchase of Equipment 34,000 28,000

Rent 3,000 3,000

Electricity 600 400 300 500

Telephone 1,000 1,000

Insurance 10,000

Food & Supplies 5,600 5,000 4,500 5,500

Depreciation 800 800 800 800

 

The following additional information is available:

 

1. At the beginning of June, it is estimated that the nursery’s bank account will be overdrawn by €4,000

2. In addition to receipts from Fees, the nursery will receive a loan of €5,000 from one of its owners in July, and sale of unwanted toys and equipment will raise €1,500 cash in August.

3. 70 percent of the Fees are received in the month in which they fall due, the remaining 30 per cent are collected in the following month. This pattern is expected to continue through out the year.

4. Purchases of Food & Supplies will be paid in the month incurred.

5. The purchase of Equipment is on credit and will be paid for in the month following purchase.

6. All other costs will be paid for in the month incurred.

   Required

1. Prepare the Golden Oranges Nursery’s cash budget for each of the first three months of the next financial year through to 31^st August 2010.

   (B)What is the objective of preparing a cash budget?