Question

Excel Online Structured Activity: Cash Budgeting porothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of just how much she must borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,000 per month, and the rent is $1,700 per month. In addition, she must make a tax payment of $13,000 in December. The current cash on hand (on December 1) is $650, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is Insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.) The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $140,000 Sales Purchases December $140,000 $30,000 January 38,000 30,000 February 62,000 30,000 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet a. Prepare a cash budget for December, January, and February. Use a minus sign to enter negative values for net cash flows, cumulative NCF values, and loans needed, if any. If the answer is zero, enter "o". Do not round Intermediate calculations. Round your answers to the nearest dollar Collections and Purchases: December January February Sales $ $ $ $ Purchases $ Payments for purchases Salaries Pent 5 $ $ $ $ $ Total payments 5

Answer 1

Prepare a cash budget for December, January, and February.
I. Collections and Purchases:
	December	January	February
Sales	$      140,000	$      38,000	$      62,000
Purchases	$        30,000	$      30,000	$      30,000
Payments
For purchases	$      140,000	$      30,000	$      30,000
Salaries	$          4,000	$        4,000	$        4,000
Rent	$          1,700	$        1,700	$        1,700
Taxes	$        13,000	-	-
Total payments	$      158,700	$      35,700	$      35,700
Cash at start of forecast	$             650	$    (18,050)	$    (15,750)
Net cash flow	$      (18,700)	$        2,300	$      26,300
Cumulative NCF	$      (18,050)	$    (15,750)	$      10,550
Target cash balance	$          4,000	$        4,000	$        4,000
Surplus cash or loans needed	$      (22,050)	$    (19,750)	$        6,550
Now, suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this question are minimal.)
If the company began selling on credit on December 1, then it would have zero receipts during   December,   down   from   $140,000.   Thus,   it   would   have   to   borrow   an  addiional $140,000,   so   its   loans   outstanding   by   December   31   would   be   $162,050.   The   loan requirements would build gradually during the month
	December
Sales	$                -
Payments
For purchases	$      140,000
Salaries	$          4,000
Rent	$          1,700
Taxes	$        13,000
Total payments	$      158,700
Cash at start of forecast	$             650
Net cash flow	$    (158,700)
Cumulative NCF	$    (158,050)
Target cash balance	$        (4,000)
Surplus cash or loans needed	$    (162,050)

с D Purchases 30000 30000 30000 January =B7 February =B8 =C7 =C8 =B15 4000 1700 =C15 4000 1700 =SUM(C17C20) =SUM(D17:020) A B 4 The estimated sales and purchases for December, January, and February are shown below. Pur 5 Sales 6 December 140000 7 January 38000 8 February 62000 9 10 Prepare a cash budget for December, January, and February 11 I. Collections and Purchases: 12 December 13 Sales =B6 14 15 Purchases =C6 16 Payments 17 For purchases =140000 18 Salaries 4000 19 Rent 1700 20 Taxes 13000 21 Total payments =SUM(B17:B20) 22 23 Cash at start of forecast 650 24 Net cash flow =B13-B21 25 Cumulative NCF =B23+B24 26 Target cash balance 4000 27 Surplus cash or loans needed =B25-B26 28 29 Now, suppose | starts selling on a credit basis December 1, giving customers 30 days to 30 If the company began selling on credit on December 1, then it would have zero receipts during 31 December 32 Sales 0 33 Payments 34 For purchases = 140000 35 Salaries 4000 36 Rent 1700 37 Taxes 13000 38 Total payments =SUM(B34:B37) 39 40 Cash at start of forecast 650 41 Net cash flow =B32-B38 42 Cumulative NCF =B40+B41 43 Target cash balance -4000 44 Surplus cash or loans needed =B42+B43 =B25 =C13-C21 =C23+C24 4000 =C25-C26 =C25 =D13-D21 =D23+D24 4000 =D25-D26