Question

Sunland Company expects to have a cash balance of $62,450 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

1. Collections from customers: January $87,450, February $162,450.
2. Payments to suppliers: January $56,450, February $91,450.
3. Wages: January $31,370, February $41,370. Wages are paid in the month they are incurred.
4. Administrative expenses: January $22,370, February $25,370. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5. Selling expenses: January $16,370, February $21,370. These costs are exclusive of depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $13,370 in cash. Sunland Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $36,450.

Prepare a cash budget for January and February.

Answer 1

CASH BUDGET FOR JANUARY FEBRUARY

Receipts

Cash collected from customers $87,450 $162,450

Sale of short term investment $13,370

Loan Received $14,850

Total Receipts $100,820 $177,300

Payments

Cash Paid to Suppliers $56,450 $91,450

Wages $31,370 $41,370

Admin expenses $21,370 $24,370

Selling Expenses $16,370 $21,370

Total Payments $125,560 $178,560

Cash Surplus/ Deficit -$24,740 -$1,260

opening balance( 01 Jan) $62,450 $37,710

Closing balance (31 Jan) $37,710 $36,450

Step-by-step explanation:

Cash Budget is a statement used to determine how much cash a business have at the end of a period and is it sufficient or not. Only Cash items are included in the Cash budget.

The Admin expenses include depreciation therefore we minus it as it is not a cash item.

In order to maintain the minimum monthly cash balance the company had to take out a loan in February of $14,850.

Answer 2

Borrowing Amount required (to make ending balance =$36,450) for January is 0 and February is $14.850. Cash Budget prepared in explanation below.

Step-by-step explanation:

Cash Budget for the month of January and February

Particulars January February

Opening Cash Balance 62,450 37,710

Add: Collections from Customers 87,450 162,450

Add: Sale of Short term Investments 13,370 0

Total Cash Available 163,270 200,160

Less: Payment to Suppliers (56,450) (91,450)

Less: Wages (31,370) (41,370)

Less: Administrative Expenses (21,370) (24,370)

Less: Selling Expenses (16,370) (21,370)

Total Payments Made (125,560) (178,560)

Total Cash after Payments 37,710 21,600

Add: Borrowings 0 14,850

Ending Cash Balance $37,710 $36,450

Please Note the Following:

1. Administrative Expenses have been reduced by $1,000 (as this was depreciation which is non-cash expense)

2. Borrowings in February has been added by $14,850 (in order to maintain company's minimum monthly cash balance of $36,450

3. All the totaling has been marked in Bold Letters