Question

Karim Corp. requires a minimum $9,900 cash balance. If necessary, loans are taken to meet this requirement at a cost of 2% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $10,300 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 $25,900 $33,900 $41,900
Cash payments 30,850 31,900 33,900
Prepare a cash budget for July, August, and September.

Answer 1

Karim Corp.

Cash Budget

For July, August and September

JULY$ AUGUST$ SEPTEMBER$

Beginning cash balance 10,300 9,900 9,900

Cash receipts 25,900 33,900 41,900

Total cash available 36,200 43,800 51,800

Cash payment 30,850 31,900 33,900

Interest on bank loan 0 91 53

Preliminary cash balance 5,350 11,809 17,847

Additional loan(loan repayment) 4,550 -1,909 -2,641

Ending cash balance 9,900 9,900 15,206

Loan Balance

Loan balance - Beginning of month 0 4,550 2,641

Additional loan(loan repayment) 4,550 -1,909 -2,641

Loan balance - End of month 4,550 2,641 0

August Interest on bank loan = 4550 * 2% = $91

September interest on loan = 2641 * 2% = 52.82 = $53