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Cash Budget for Higgins and Griffin

Cash Budget for Higgins and Griffin Financial Planners

Higgins and Griffin Financial Planners have forecasted revenue for the first six months of 2005 as shown on the following table:

Month Nov. 2004 Dec-04 Jan-05 Feb Mar Apr May June

Revenue $48,000.00 $45,000.00 $25,000.00 $27,000.00 $30,000.00 $38,000.00 $40,000.00 $45,000.00

The firm collects 60% of its sales immediately, 39% one month after the sale, and 1% are written off as bad debts two months after the sale.

The firm assumes that wages and benefits paid to clerical personnel will be $7,000 per month while commissions to sales associates average 25% of collectible sales.

Each of the two partners is paid $5,000 per month. Commissions and partner salaries are paid one month after the revenue is earned.

Rent expense for their office space is $2,500 per month, and lease expense for office equipment is $800.

Utilities average $175 per month, except in May and June when they average only $100

The ending cash balance in December 2004 was $12,000

Create a cash budget for January to June 2005 and determine the firm's ending cash balance in each month assuming that the partners wish to maintain a minimum cash balance of $8,000.

Solution Preview

Cash Budget for Higgins and Griffin Financial Planners

Higgins and Griffin Financial Planners have forecasted revenue for the first six months of 2005 as shown on the following table:

Month Nov. 2004 Dec-04 Jan-05 Feb Mar Apr May June

Revenue $48,000.00 $45,000.00 $25,000.00 $27,000.00 $30,000.00 $38,000.00 $40,000.00 $45,000.00

The firm collects 60% of its sales immediately, 39% one month after the sale, and 1% are written off as bad debts two months after the sale.

The firm assumes that wages and benefits paid to clerical ...

Solution Summary

This solution is comprised of a detailed explanation to create a cash budget for January to June 2005 and determine the firm's ending cash balance in each month assuming that the partners wish to maintain a minimum cash balance of $8,000.

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