Unformatted text preview: ### 344,000 November purchases 180,000 180,000 360,000 December purchases 96,000 96,000 Total cash payments 272,000 352,000 276,000 900,000 LBJ COMPANY CASH BUDGET FOR THE 3 MONTHS ENDING DECEMBER 31 October November December Quarter Cash balance 74,000 50,000 50,000 74,000 Add collections from customers 446,000 750,000 960,000 2,156,000 Total cash available 520,000 800,000 1,010,000 2,230,000 Less disbursements Merchandise purchases 272,000 352,000 276,000 900,000 Advertising 220,000 ### 220,000 660,000 Rent 20,000 ### 20,000 60,000 Salaries 110,000 ### 110,000 330,000 Commissions 28,000 44,000 24,000 96,000 Utilities 10,000 ### 10,000 30,000 Equipment purchases 22,000 50,000 72,000 Dividends paid 20,000 ### Total disbursements 702,000 806,000 660,000 2,168,000 Excess (deficiency) of receipts over disbursements (182,000) (6,000) 350,000 62,000 Financing: Borrowings 232,000 56,000 288,000 Repayments (288,000) (288,000) Interest (8,080) (8,080) Total financing 232,000 56,000 (296,080) (8,080) Cash balance, ending 50,000 ### 53,920 53,920...
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ACCT504 Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D and you read Chapter 7. There is also a practice case study to work on. Your Professor will provide the solution to the practice case study at the end of Week 5. This case study should be uploaded by 11:59PM Mountain time of the Sunday ending Week 6 to the Week 6 Assignment Dropbox. 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 and 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 $19,000 cash in June, 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.
1. Use this information to prepare a Cash Budget for the months of May and June, using the template provided in Doc Sharing.
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?