Too Late, Inc., has a 40 – day average collection period and wants to maintain a
ID: 2761345 • Letter: T
Question
Too Late, Inc., has a 40 – day average collection period and wants to maintain a minimum cash balance of $ 10 million, which is what the company currently has on hand. The company currently has a receivables balance of $110 million and has developed the following sales and cash disbursement budgets in millions:
Q1
Q2
Q3
Q4
Sales
$210
$280
$260
$330
Total cash disbursement
190
240
350
220
Complete the following cash budget for the company. What conclusions do you draw?
TOO LATE, INC. CASH BUDGET (in millions)
Q1
Q2
Q3
Q4
Beginning receivables
Sales
Cash collections
Ending receivables
Total cash collections
Total cash disbursements
Net cash flow
Beginning cash balance
Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus (deficit)
Q1
Q2
Q3
Q4
Sales
$210
$280
$260
$330
Total cash disbursement
190
240
350
220
Explanation / Answer
Answer: The company has 40 day avergae collections.
Cash collected in same Quarter=50/90=5/9
Ending receivable=1-5/9=4/9
TOO LATE, INC. CASH BUDGET (in millions) Q1 Q2 Q3 Q4 Beginning receivables 110.00 93.33 124.44 115.56 Sales 210.00 280.00 260.00 330.00 Cash collections 226.67 248.89 268.89 298.89 Ending receivables 93.33 124.44 115.56 146.67 Total cash collections 226.67 248.89 268.89 298.89 Total cash disbursements 190.00 240.00 350.00 220.00 Net cash flow 36.67 8.89 -81.11 78.89 Beginning cash balance 10.00 46.67 55.56 -25.56 Net cash inflow 36.67 8.89 -81.11 78.89 Ending cash balance 46.67 55.56 -25.56 53.33 Minimum cash balance 10.00 10.00 10.00 10.00 Cumulative surplus (deficit) 36.67 45.56 -35.56 43.33