Cash Budgeting

ACCT504 Case Study 3 on Cash Budgeting

The cash budget was covered during Week 4 when we covered TCO D and you read Chapter 4. There is also a practice case study to work on. This case study should be uploadedto the Week 6 Assignment Dropboxby 11:59 p.m.mountain time on Sunday at the end of Week 6. You are encouraged to use the Excel template file provided in Doc Sharing.

The LBJ Company has budgeted sales revenues as follows.

                                                                                   April                   May        June

Credit sales                                                            $94,000             $89,500             $75,000

Cash sales                                                                48,000               75,000               57,000

Total sales                                                            $142,000          $164,500          $132,000

Past experience indicates that 30% of the credit sales will be collected in the month of sale and the remaining 70% will be collected in the following month.

Purchases of inventory are all on credit;40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $195,000 in April, $135,000 in May, and $63,000 in June.

Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b) sale of new common stock for $50,000 in June. Other budgeted cash disbursements: (a) operating expenses of $15,000 each month, (b) selling and administrative expenses of $10,150 each month, (c) purchase of equipment for $35,000 cash in May, and (d) dividends of $20,000 will be paid in June.

The company has a cash balance of $20,000 at the beginning of May and wishes to maintain a minimum cash balance of $20,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 10%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available.Also assume that there is no outstanding financing as of May 1.

Requirements:

1. Use this information to prepare a cash budget for the months of May and June, using the template provided in DocSharing.

2. What are the three sections of a cash budget, and what is included in each section?

3. Why is a cash budget so vital to a company?

4. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash?

Grading Rubric for Cash Budget Case Study

Category	Points	%	Description
Documentation and Formatting	6	10%	Case Study worksheet will be done in Excel and will contain formulas to receive maximum credit.
Organization and Cohesiveness	6	10%	A quality solution will include the content properly organized in accordance with the instructions provided. The cash budgets will be complete and the analysis will be consistent with the cash budgets presented.
Editing	6	10%	Quality work will be free of any mathematical, spelling, punctuation, or grammatical errors. Sentences and paragraphs (where appropriate) will be clear, concise, and factually correct.
Content	42	70%	A quality project will have all required work completed and will be correct.
Total	60	100%	A quality project will meet or exceed all of the requirements.

 

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