III. Cash Flow Budget East End Welding Selected Information 2017 (Actual) 2018 (
ID: 2784950 • Letter: I
Question
III. Cash Flow Budget
East End Welding Selected Information
2017 (Actual) 2018 (Projected)
October November December January February March
Sales 2,400 2,800 8,000 4,000 1,600 1,800
Purchases 3,400 3,600 8,000 2,000 800 1,000
Wages payable monthly $ 1,200
Principal Due on Debt in February 1,400
Interest due in February 600
Dividend payable in March 2,000
Taxes payable in January 3,000
Addition to Accum. Deprec. in March 200
Cash Balance on January 1, 2017 3,200
Minimum Desired Cash Balance 1,500
A. The treasurer of East End Welding wants to estimate the company’s cash balances for the first three months of 2018. Using the information above, help him do that for the months of January, February, and March. He expects 25% of sales to be cash, and the rest on 60 day credit terms. Purchases are paid on 30 day credit terms. Calculate the monthly cash budgets.
B. What should be the treasurer’s concern, to invest excess cash or to borrow, when and how much?
Explanation / Answer
A. Cash Budget Particulars Jan Feb Mar a Opening cash balance 3,200 1,200 2,400 b Cash collections from cash sales (25%) 1,000 400 450 c Cash collection from Debtors: November (2800*75%) 2,100 December (8000*75%) 6,000 January (4000*75%) 3,000 d Payment for purchase creditors: December 8,000 January 2,000 February 800 e Expenses Wages payable 1,200 1,200 1,200 Principal due on debt in february 1,400 Interest due in February 600 Dividend payable in march 2,000 Taxes payable in January 3,000 f Closing cash balance ( a+b+c-d-e) (5,900) 2,400 1,850 g Minimum cash balance 1,200 1,200 1,200 h Amount to be (borrowed) / invested [f-g] (7,100) 1,200 650 B. Treasurer's concern would be to borrow $7100 in the month of January and to invest excess cash in Feb & March to the tune of $1200 & $650 respectively. Please hit the like button if the answer helped you else leave a comment for further clarification. Thank you! All the best!