Question

Karim Corp. requires a minimum $10,000 cash balance. Loans taken to meet this requirement cost 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $10,400, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow.

July August September
Cash receipts $26,000 $34,000 $42,000
Cash payments 31,000 32,000 34,000

Required:
Prepare a cash budget for July, August, and September.

Answer 1

July $10,000

August $10,000

September $15,328

Step-by-step explanation:

Preparation of the cash budget for July, August, and September.

KARIM CORP

Cash Budgetfor July, August & September

July August September

Beginning Cash Balance

$10,400 $ 10,000 $10,000

Add Cash receipts $26,000 $34,000 $42,000

Total Cash Available$36,400 $ 44,000 $52,000

Cash payments $31,000 $32,000 $34,000

Interest Expense $0 $46 $26.46

Preliminary cash balance $5,400 $ 11,954 $ 17,974

Additional loan (Loan Repayments)

$4,600 ($1,954) ($2,646)

Ending Cash Balance

$10,000 $10,000 $15,328

($5,400+$4,600=$10,000)

($ 11,954-$1,954=$10,000)

($17,974-$2,646=$15,328)

Calculation for Loan Balance

Loan Balance -Beginning of Month

$- $4,600 $2,646

Additional Loan (Loan Repayment)

$4,600 ($1,954) ($2,646)

Loan Balance End of Month $4,600 ($2,646) $0

Therefore the cash budget for July, August, and September are:

July $10,000

August $10,000

September $15,328