Chapter 20, Problem 31E

To determine

Cash Budget:

It is the prediction of cash inflows and outflows for an entity over a period of time. It is helpful in assessing that the entity has enough cash to operate.

To prepare: Monthly cash budget for the month of April, May, June.

Explanation of Solution

Company C
Cash Budget
Particulars	April Amount ($)	May Amount ($)	June Amount ($)
Beginning cash balance	12,000	12,000	12,279
Add: Cash receipts (Working Note 1)	28,000	36,000	32,000
Total cash available	40,000	48,000	44,279
Less: Cash disbursement (Working Note 2)	32,040	29,600	28,080
Interest expense (working note 3)	20	61	-
Preliminary cash balance	7,940	18,339	16,199
Less: Required ending cash balance	12,000	12,000	12,000
Surplus	(4,060)	6,339	4,199
Beginning balance of loan	2,000	6,060	0
Add: Additional loan from bank	4,060	0	0
Less: Repayment of loan	0	6,060	0
Ending loan balance	6,060	0	0
Ending cash balance carried forward next month	12,000	12,279	16,199
Table (1)

Working note:

Company C
Cash Receipts
Particulars	April Amount ($)	May Amount ($)	June Amount ($)
Sales	32,000	40,000	24,000
Cash collection:
Previous sale (50%)	12,000	16,000	20,000
Current sale (50%)	16,000	20,000	12,000
Total	28,000	36,000	32,000
Table (2)

Working note:

Company C
Cash Disbursements
Particulars	April Amount ($)	May Amount ($)	June Amount ($)
Cash payments for merchandise	20,200	16,800	17,200
Sales commission $\left(\text{sales}\times \text{10\%}\right)$	3,200	4,000	2,400
Shipping $\left(\text{sales}\times \text{2\%}\right)$	640	800	480
Salaries	5,000	5,000	5,000
Rent	3,000	3,000	3,000
Total	32,040	29,600	28,080
Table (3)

Working note:

Formula to calculate interest expense for the month,

$\text{Interest expense}=\text{Beginning balance of loan}\times 1\%$

For April

Given,
Beginning balance of loan is $2,000.

Substitute $2,000 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$2,000\times 1\%\\ =\$20\end{array}$

For May,

Beginning balance of loan $6,060 (calculated).

Substitute $6,060 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$6,060\times 1\%\\ =\$61\end{array}$

For June,

Beginning balance of loan $0 (calculated).

Substitute $0 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$0\times 1\%\\ =\$0\end{array}$