Preparing a financial budget Asume Daniels consulting began January with $12,000
ID: 2419415 • Letter: P
Question
Preparing a financial budget
Asume Daniels consulting began January with $12,000 cash. Management forecasts that cash receipts from credit customers will be $52,000 in January and $55,000 in February. Projected cash payments include equipment purchases ($16,000 in January and $40,400 in February) and selling and administratived expenses ($6,000 each month).
Daniels's bank requires a $23,000 minimum balance in the firm's checking account. At the end of any month when the account balance falls below $23,000, the bank automatically extends credit to the firm in multiples of $5,000. Daniels borrows as little as possible and pays back loans each month in $1,000 increments, plus 12% interest on the entire upaid principal. The first payment occurs one month after the loan.
Requirements
1. Prepare Daniels Consulting's cash budget for January and February 2018.
2. How much cash will Daniels borrow in Februrary in cash receipts from customers that month total $30,000 instead of $55,000?
Explanation / Answer
1.
Cash Budget for January and February
Particulars
January
February
Opening Cash
12,000
42,000
Cash receipts
52,000
55,000
Cash Available
64,000
97,000
Cash Payments
Equipment purchase
16,000
40,400
selling and administratived expenses
6,000
6,000
22,000
46,400
Ending Balance
42,000
50,600
Minimum Balance Required
23,000
23,000
Amount to be borrowed
-
-
2
Cash Budget for January and February
Particulars
January
February
Opening Cash
12,000
42,000
Cash receipts
52,000
30,000
Cash Available
64,000
72,000
Cash Payments
Equipment purchase
16,000
40,400
selling and administratived expenses
6,000
6,000
22,000
46,400
Ending Balance
42,000
25,600
Minimum Balance Required
23,000
23,000
Amount to be borrowed
-
-
Cash Budget for January and February
Particulars
January
February
Opening Cash
12,000
42,000
Cash receipts
52,000
55,000
Cash Available
64,000
97,000
Cash Payments
Equipment purchase
16,000
40,400
selling and administratived expenses
6,000
6,000
22,000
46,400
Ending Balance
42,000
50,600
Minimum Balance Required
23,000
23,000
Amount to be borrowed
-
-