Question

Karim Corp. requires a minimum $8,000 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 $8,400, 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 $20,000 $26,000 $40,000
Cash payments 28,000 30,000 22,000

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

Answer 1

Karim Corp

Cash Budget

July August September

Cash inflows: $20,000 $26,000 $40,000

Cash outflows: ($28,000) ($30,000) ($22,000)

Monthly cash flow: ($8,000) ($4,000) $18,000

Monthly interests: $0 ($76) ($116.76)

Initial cash balance: $8,400 $8,000 $8,000

Ending cash balance: $400 $3,924 $25,883.24

Required bank loan: $7,600 $4,076 $0

Payment of bank loan: $0 $0 ($11,676)

Total $8,000 $8,000 $14,207.24

Step-by-step explanation:

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