Question

CASH BUDGETING

Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017:

	May 2016	$186,000
	June	186,000
	July	372,000
	August	540,000
	September	720,000
	October	360,000
	November	360,000
	December	90,000
	January 2017	180,000

Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:

	May 2016	$90,000
	June	90,000
	July	126,000
	August	882,000
	September	307,000
	October	234,000
	November	163,000
	December	90,000

General and administrative salaries are approximately $28,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,800 a month. Income tax payments of $62,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.

a. Prepare a monthly cash budget for the last 6 months of 2016. If no entry required, enter "0". Use minus sign to enter losses, loans outstanding or any other negative amounts. May June July August September October November December January Collections and purchases worksheet Sales (gross) Collections During month of sale During 1st month after sale During 2nd month after sale Total collections Purchases Labor and raw materials Payments for labor and raw materials A A Cash gain or loss for month Collections Payments for labor and raw materials General and administrative salaries Lease payments Miscellaneous expenses Income tax payments Design studio payment Total payments Net cash gain (loss) during month
Prepare monthly estimates of the required financing or excess funds - that is, the amount of money Bowers will need to borrow or will have available to invest. Round your answers to the nearest dollar. Enter loans outstanding with minus sign.

July	$
August	$
September	$
October	$
November	$
December	$

Answer 1

Helen's Fashion Designs											Calculation
Cash budget	May	June	July	Aug	Sep	Oct	Nov	Dec	Jan
Collections & purchases worksheet
Sales (gross)	186,000	186,000	372,000	540,000	720,000	360,000	360,000	90,000	180,000
Collections
During month of sale	18,600	18,600	37,200	54,000	72,000	36,000	36,000	9,000
During 1st month after sale	-	139,500	139,500	279,000	405,000	540,000	270,000	270,000
During 2nd month after sale	-	-	27,900	27,900	55,800	81,000	108,000	54,000
Total collections			204,600	360,900	532,800	657,000	414,000	333,000
Purchases
Labor and raw materials	90,000	90,000	126,000	882,000	307,000	234,000	163,000	90,000
Payments for Labor and raw materials		90,000	90,000	126,000	882,000	307,000	234,000	163,000
Cash gain or loss for month
Collections			204,600	360,900	532,800	657,000	414,000	333,000
Payments for Labor and raw materials			90,000	126,000	882,000	307,000	234,000	163,000
General and administrative salaries			28,000	28,000	28,000	28,000	28,000	28,000
Lease payments			9,000	9,000	9,000	9,000	9,000	9,000
Miscellaneous expenses			2,800	2,800	2,800	2,800	2,800	2,800
Income tax payments			-	-	62,000	-	-	62,000
Desig studio payments			-	-	-	180,000	-	-
Total payments			129,800	165,800	983,800	526,800	273,800	264,800
Net cash gain (loss) during month			74,800	195,100	(451,000)	130,200	140,200	68,200			Collections less Total payments
Loan requirement or cash surplus
Cash at start of month			132,000	206,800	401,900	(49,100)	81,100	221,300
Cumulative cash			206,800	401,900	(49,100)	81,100	221,300	289,500			Net cash gain (loss) plus Cash at start of month
Target cash balance			90,000	90,000	90,000	90,000	90,000	90,000
Cumulative surplus cash or loan outstanding to maintain $90,000 target cash			116,800	311,900	(139,100)	(8,900)	131,300	199,500			Cumulative cash less Target cash balance
Prepare monthly estimates of the required financing or excess funds
July	116,800
Aug	311,900
Sep	(139,100)
Oct	(8,900)
Nov	131,300
Dec	199,500