Question

Sandhill Company expects to have a cash balance of $61,550 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

1. Collections from customers: January $86,550, February $161,550.
2. Payments to suppliers: January $55,550, February $90,550.
3. Wages: January $31,490, February $41,490. Wages are paid in the month they are incurred.
4. Administrative expenses: January $22,490, February $25,490. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5. Selling expenses: January $16,490, February $21,490. These costs are exclusive of depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $13,490 in cash. Sandhill 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 $35,550.

Required:
Prepare a cash budget for January and February.

Answer 1

January February

Beginning Cash Balance 61,550 36,570

Add: Receipts

Collections from Customers 86,550 161,550

Sale of Marketable Securities 13,490 0

Total Receipts 100,040 161,550

Total Available Cash 161,590 198,120

Less: Disbursements

Payments to Suppliers 55,550 90,550

Wages 31,490 41,490

Admin Expenses 21,490 24,490

Selling Expenses 16,490 21,490

Total Disbursements 125,020‬ 178,020‬

Cash Balance ‭36,570‬ ‭20,100‬

Financing

Add: Borrowings 0 15,450

Less: Repayments 0 0

Ending Cash Balance 36,570 35,550

Admin Expenses are independent of Depreciation which is not a cash expense.

The company wants to maintain a minimum monthly cash balance of $35,550 so in February they will have to borrow;

= 35,550 - 20,100

= $15,450