A cash budget, by quarters, is given below for a retail company (000 omitted). T

Question

A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires a minimum cash balance of at least $5,000 to start each quarter. Fill in the missing amounts. (Enter your answers in thousands of dollars. Cash deficiencies and Repayments should be indicated by a minus sign.) Cash Budget Quarter (000 omitted) Year Cash balance, beginning Add collections from customers Total cash available 389 Purchase of inventory Selling and administrative expenses 50 60 34 45 30 119 13 25 57 Dividends Total disbursements Excess (deficiency) of cash available over disbursements Financing 116 Borrowings Repayments (including interest) Total financing Cash balance, ending Interest will total $1,000 for the year (25)

Explanation / Answer

Schedule of cash budget showing missing amounts (Amount in $'000)

Working Notes:-

1) Firstly all the missing figures of Ist quarter are calculated, then for 2nd Qtr and so on. Collection from customers for Quarter 1 is the difference between total cash available and cash balance beginning. Total disbursements for Qtr 1 is the sum of total cash available and deficiency. Borrowing for Ist qtr will be to maintain minmum cash balance of $5,000 and to cover deficiency of $5,000 (i.e. $10,000 = $5,000+$5,000).

2) Beginning cash balance for Qtr 2 is $5,000. Total disbursements in quarter 2 is $116,000 and borrowing is $16,000. It means borrowing should be to maintain minimum cash balance of $5,000 and to cover deficiency of $11,000 ($16,000 - $5,000). As the deficiency for Qtr 2 is $11,000, total cash available is $105,000 ($116,000-$11,000).

3) The opening cash balance at the beginning is $5,000 in Qtr 3. Excess of cash over disbursements in Qtr 3 is $7,000, it means total disbursements are $109,000 ($116,000-$7,000). Total interest for the year is 1,000. thus the total repayments including interest will be $27,000 ($10,000 Qtr 1 borrowing+$16,000 Qtr 2 borrowing+Interest $1,000). Repayments in Qtr 4 is $25,000. Repayments in Qtr 3 is $2,000 ($27,000-$25,000).

Cash Budget Quarter (000 omitted) 1 2 3 4 Year Cash Balance, Beginning 9 5 5 5 9 Add: Collections from customers 71 ($80-$9) 100 ($105-$5) 111 107 ($389-$71-$100-$107) 389 Total Cash available 80 105 ($116-$11) 116 112 ($5+$107) 398 Less: Disbursements Purchase of Inventory 50 60 52 ($109-$30-$25-$2) 34 196 Selling and Administrative expenses 20 ($85-$50-$13-$2) 45 30 24 ($119-$20-$45-$30) 119 Equipment purchases 13 9 25 10 ($57-$13-$9-$25) 57 Dividends 2 2 2 2 8 Total Disbursements 85 ($80+$5) 116 109 ($116-$7) 70 ($34+$24+$10+$2) 380 Excess/(deficiency) of cash available over disbursements (5) (11) ($16-$5 Minimum cash) 7 42 ($112-$70) 18 ($398-$380) Financing: Borrowings 10 ($5 minimum cash+$5 deficiency)80) 16 0 0 26 Repayments (including interest) 0 0 (2) (25) (27) Total financing 10 16 (2) (25) (1) Cash balance, ending 5 ($10-$5) 5 ($16-$11) 5 17 ($42-$25) 17

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