The accountant for Teresa\'s Dress Shop prepared the following cash budget. Tere

Question

The accountant for Teresa's Dress Shop prepared the following cash budget. Teresa desires to maintain a cash cushion of $14,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 2% per month.

Cash Budget JUL AUG SEP
section 1: cash receipts
beginning cash balance $42,500 $? $?
add cash receipts 180,000 200,000 240,600
total cash available (a) 222,500 ? ?

section 2: cash payments
for inventory purchases 165,526 140,230 174,152
for s&a expenses 54,500 60,560 61,432
for interest expense 0 ? ?
total budgeted disburements (b) 220,026 ? ?

section 3: financing activities
surplus (shortage) 2,474 ? ?
borrowing (repayments) (c) 11,526 ? ?
ending cash balance (a- b + c) $14,000 $14,000 $14,000

Required
a. Complete the cash budget by filling in the missing amounts. Round all computations to the nearest whole dollar.
b. Determine the amount of net cash flows from operating activities Teresa's will report on the third quarter pro forma statement of cash flows.
c. Determine the amount of net cash flows from financing activities Teresa's will report on the third quarter pro forma statement of cash flows.

Explanation / Answer

a Cash Budget Jul Aug Sep Beginning cash         42,500       14,000       14,000 Add cash receipt        180,000      200,000     240,600 Total Cash available        222,500      214,000     254,600 cash payments Inventory purchase        165,526      140,230     174,152 S&A         54,500       60,560       61,432 for interest exp                -              231           251 Total Disbursements        220,026      201,021     235,835 surplus/(shortage)           2,474       12,979       18,765 Borrowing/(repayments)         11,526       12,547         7,781 Ending cash         14,000       14,000       14,000 b Net cash flow from operating activiites add all the disbursments = 656,881 c Net cash flow from financing actities add ll the borrowing/ (rep ayments) = 31,854

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