Criteria:

All calculations completed using Excel formula functions, (SHOW CALCULATIONS FOR ALL PROBLEMS)

Prepare a comprehensive cash budget

Use the format as your guide, Format is given at the end of the problem

Check figures: Cash receipts (collections) balance Aug: $20,500; Cash disbursements (all expenses) July $20,400

REQUIRED:

Prepare a monthly schedule of budgeted operating cash receipts for July, August, and September.

Prepare a monthly purchases budget and a schedule of budgeted cash payments for purchases for July, august, and September.

Prepare a monthly cash budget for July, August, and September. Show borrowings from the companys bank and repayments to the bank as needed to maintain the minimum cash balance.

In addition to the preparation of the three month cash budget, provide the following descriptive analysis by addressing each of the following items fully:

Does the cash budget based on the given parameters provide the firm with the liquidity in needs in meeting operations for the quarter (and why)?

The CFO wants to know what is the impact of increasing the minimum monthly balance to $7,000. Provide a short but detailed response to the CFO on the impact of this change. Or course the CFO will expect to see the numerical values that support the response.

What is the impact of interest rate changes on the a) the budget as proposed, and b) the CFOs request for higher minimum cash balance?

Problem provided below:

The company is planning its cash needs for the third quarter of 2012, and the folowing information is available to assist in preparing a cash budget. Budgeted income statements for July through October 2012 are as follows:

	July	August	September
Sales	$18,000	$24,000	$28,000
Cost of goods sold	-10,000	-14,000	-16,000
Gross profit	8,000	10,000	12,000
Less other expenses:
Selling	2,300	3,000	3,400
Administrative	2,600	3,000	3,200
Total	-4,900	-6,000	-6,600
Net income	$3,100	$4,000	$5,400

Additional information follows:

Other expenses, which are paid monthly, include $1,000 of depreciation per month.

Sales are 30 percent for cash and 70 percent on credit

Credit sales are collected 20 percent in the month of sale, 70 percent on month after sale, and 10 percent two months after sale. May sales were $15,000, and June sales were $16,000.

Merchandise is paid for 50 percent in the month of purchase; the remaining 50 percent is paid in the following month. Accounts payable for merchandise at June 30 totaled $6,000.

The company maintains its ending inventory levels at 25 percent of the cost of goods to be sold in the following month. The inventory at June 30 is $2,500.

An equipment note of $5,000 per month is being paid through August.

The company must maintain a cash balance of at least $5,000 at the end of each month. The cash balance on June 30 is $5,100.

The company can borrow from its bank as needed. Borrowings and repayments must be in multiples of $100. All borrowings take place at the beginning of a month, and all repayments are made at the end of a month. When the principal is repaid, interest on the repayment is also paid. The interest rate is 12 percent per year.

This is how the budget needs to be set up, this format MUST be followed!!

	Cash Budget
	A) Cash collections schedule:
		May	June	July		Aug
	Sales
	Cash 30%
	Credit 70%
	A/R Schedule
	From credit sales:
	May		$
	June		$	$
	July		$	$		$
	August			$		$
	September					$
	Total credit collections		$	$		$
	Cash sales		$	$		$
	Total cash collected:		$	$		$
	B) purchases and payments budget
	Beginning inventory
	add purchases
	minus Ending inventory
	COGS
	Payments From:	June	$6,000
		July	$0	$0
		August		$0		$0
		September				$0
	Total merchandise payments:		$6,000	$0		$0
	C) Monthly Cash Budget		July	Aug		Sept
	Beginning cash balance:
	Short-term bank financing principal
	Cash collections:
	Total cash available		$	$		$
	Disbursements:
	Payments for merchandise
	Expenses
	Equipment note
	Disbursements: subtotal		$	$		$
	Financing
	Short-term principal repayment
	Interest expense					$
	Total disbursements		$	$		$
	Ending cash balance		$	$		$
	Total quarterly financing:		$
	Total quarterly interest expense
	July principal		$
	Aug principal		$