Question

Presented below are partial October, November, and December cash budgets for Holidays Events. Loans are obtained in increments of $1,000 at the start of each month to maintain a minimum end-of-month balance of $12,000. Interest is one percent simple interest (no compounding) per month, payable when the loan is repaid. Repayments are made as soon as possible, subject to the minimum end-of-month balance.
Required:
Complete the short-term financing section of the cash budget and all missing figures

October November December Total
Cash balance, beginning $24,0005
Collection on sales 36,000 41,000 81,000
Cash available for operations
Disbursements for operations (51,000) (61,000) (40,000)
Ending cash before borrowings or replacements
Short-term finance:
New loans
Repayments
Interest
Cash balance, ending

Answer 1

Answer:

Holidays Events

Cash Budget

                                                     October  November  December  Total

Cash balance, beginning            $24,000   $12,000     $12,000   $24,000

Collection on sales                        36,000     41,000        81,000    158,000

Cash available for operations    $60,000  $53,000    $93,000  $182,000

Disbursements for operations     (51,000)   (61,000)    (40,000)  (152,000)

Ending cash before borrowings

or repayments                             $9,000   ($8,000)   $53,000   $30,000

Short-term finance:

New loans                                      3,000     20,000                        23,000

Repayments                                                                   (23,260)   (23,260)

Interest                                               30           230           0            

Cash balance, ending              $12,000    $12,000    $29,740   $29,740

Explanation:

a) Data and Calculations;

Loans obtained in increments of $1,000

Minimum end-of-month balance = $12,000

Simple Interest rate = 1% per month

Cash Budget

                                                     October  November  December  Total

Cash balance, beginning            $24,000   $12,000     $12,000   $24,000

Collection on sales                        36,000     41,000        81,000    158,000

Cash available for operations    $60,000  $53,000    $93,000  $182,000

Disbursements for operations     (51,000)   (61,000)    (40,000)  (152,000)

Ending cash before borrowings

or repayments                              

Short-term finance:

New loans                                      

Repayments                                    

Interest                                                    

Cash balance, ending  

b) Holidays' Cash Budget is a Schedule that estimates the cash inflows and outflows  during a period of its financial cycle.  The purpose of preparing one is to determine availability of cash for continuing operational activities.  In addition, the Cash Budget shows when Holidays needs to borrow cash to continue operations.  Excess cash is also determined from the Cash Budget for investment purposes.