Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year. Cash Receipts Cash DisbursementsJanuary $525,000 $475,000 February 400,000 350,000 March 450,000 525,000
According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $30,000 at each month-end. In return, the bank has agreed that the company can borrow up to $150,000 at an annual interest rate of 12%, paid on the last day of each month. The interest is computed. based on the beginning balance of the loan for the month. The company repays loan principal with available cash on the last day of each month. The company has a cash balance of $30,000 and a loan balance of $60,000 at January 1. Prepare monthly cash budgets for each of the first three months of next year

Answer 1

Answer:

                                           Kayak Co.

                                         Cash Budget

                                                January        February         March

Cash inflows:                         $525,000      $400,000     $450,000                  

Cash outflows:                      ($475,000)    ($350,000)    ($525,000)

Monthly cash flow:                  $50,000        $50,000      ($75,000)          

Monthly interests:                       ($600)             ($106)                 $0

Initial cash balance:                $30,000         $30,000        $69,294

Ending cash balance:             $79,400          $79,894        ($5,706)

Required bank loan:                        $0                   $0         $35,706

Payment of bank loan:          ($49,400)        ($10,600)                $0

Total                                        $30,000         $69,294       $30,000          

Explanation:

                               Cash Receipts          Cash Disbursements

January                      $525,000               $475,000

February                    $400,000               $350,000

March                         $450,000               $525,000

A cash budget is the estimation of the business's future cash flows including estimated revenues and expenses.