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cash budget

A company had sales of $50k in March and $60k in April. Forecast sales for May, June, and July are $70k, $80k, and $100k, respectively. The firm has a cash balance of $5k in May 1 and wishes to maintain a minimum cash balance of $5k. Given the following data, prepare a cash budget for the months of May, June and July.

1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale.
2) The firm receives other income of $2,000 per month.
3) The firm's actual or expected purchases, all made for cash, are $50k, $70k and $80k for the months of May, June and July, respectively.
4) Rent is $3k per month.
5) Wages and salaries are 10% of the previous month's sales.
6) Cash dividends of $3k will be paid in June.
7) Payment of principal and interest of $4k is due in June.
8) A cash purchase of equipment costing $6k is scheduled in July.
9) Taxes of $6k are due in June.

Solution Preview

The cash budget is in the Excel file I've attached.

Several of the fields in it are pretty self-explanatory, but let's go through the details of May as an example; the next 2 months are done in the same way:

We have that the firm receives in the current month in cash 20% of the sales in the current month, 60% of the sales made last month, and 20% pf the sales made two months ago. We know that in May it ...

Solution Summary

The cash budget is assessed.