Holcomb Company expects to have a cash balance of $43,000 on January 1, 2014. Th

Question

Holcomb Company expects to have a cash balance of $43,000 on January 1, 2014. These are the relevant monthly budget data for the first two months of 2014.

1. Collections from customers: January $85,000, February $132,000

2. Payments to suppliers: January $40,000, February $50,000

3. Wages: January $34,000, February $40,000. Wages are paid in the month they are incurred.

4. Administrative expenses: January $24,000, February $31,000. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.

5. Selling expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.

6. Sales of short-term investments in January are expected to realize $12,000 in cash. Holcomb has a line of credit at a local bank that enables it to borrow up to $40,000. The company wants to maintain a minimum monthly cash balance of $25,000. Instructions Prepare a cash budget for January and February

Explanation / Answer

Holcomb Company Cash Budget Particulars Jan Feb Total Opening cash Balance $43,000 $28,000 $43,000 Add: Receipts Collection from Customers $85,000 $132,000 $217,000 Sales of short term investments $12,000 $0 $12,000 Total Cash available before financing $140,000 $160,000 $272,000 Less: Disbursements Payment to Supplier $40,000 $50,000 $90,000 Wages $34,000 $40,000 $74,000 Administrative Expenses (Less Dep.) $23,000 $30,000 $53,000 Selling Exp. $15,000 $20,000 $35,000 Total Disbursement $112,000 $140,000 $252,000 Cash Balance Closing $28,000 $20,000 $20,000 Add: Loan - Local Bank 0 $5,000 $5,000 Cls. Cash Balance $28,000 $25,000 $25,000

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