Question

Cash budgetlong dash—Basic

  Grenoble Enterprises had sales of

$ 50 comma 300$50,300

in March and

$ 60 comma 000$60,000

in April. Forecast sales for​ May, June, and July are

$ 69 comma 800$69,800​,

$ 79 comma 800$79,800​,

and

$ 99 comma 900$99,900​,

respectively. The firm has a cash balance of

$ 4 comma 500$4,500

on May 1 and wishes to maintain a minimum cash balance of

$ 4 comma 500$4,500.

Given the following​ data, prepare and interpret a cash budget for the months of​May, June, and July.​(1) The firm makes

17 %17%

of sales for​ cash,

61 %61%

are collected in the next​ month, and the remaining

22 %22%

are collected in the second month following sale.  ​(2) The firm receives other income of

$ 2 comma 500$2,500

per month.  ​(3) The​ firm's actual or expected​ purchases, all made for​ cash, are

$ 49 comma 700$49,700​,

$ 70 comma 300$70,300​,

and

$ 79 comma 600$79,600

for the months of May through​ July, respectively.  ​(4) Rent is

$ 3 comma 200$3,200

per month.  ​(5) Wages and salaries are

8 %8%

of the previous​ month's sales.  ​(6) Cash dividends of

$ 2 comma 600$2,600

will be paid in June.  ​(7) Payment of principal and interest of

$ 4 comma 200$4,200

is due in June.  ​(8) A cash purchase of equipment costing

$ 5 comma 900$5,900

is scheduled in July.  ​(9) Taxes of

$ 5 comma 800$5,800

are due in June.

Complete the first month of the cash budget for Grenoble Enterprises​ below:  ​(Round to the nearest dollar. Please input all the values in the table before checking your​ answers.)

	March		April		May
Sales	$	50,300	$	60,000	$	69,800
Cash sales		8,551		10,200	$
Lag 1 month					$
Lag 2 months					$
Other income					$
Total cash receipts					$

Answer 1

Cash Budget for Grenoble Enterprises:

All amounts are in $ (rounded off to nearest $)

Amounts mentioned in parenthesis represent negative amounts

Particulars	March	April	May	June	July
Sales - Actual/Forecasted	50,300	60,000	69,800	79,800	99,900
Opening Cash Balance			4,500
Desired Minimum cash balance			4,500	4,500	4,500
Cash Budget Details
Sales Collection - pertaining Current Month			11,866	13,566	16,983
- pertaining Previous Month			36,600	42,578	48,678
- pertaining 2 Months prior			11,066	13,200	15,356
Other Income			2,500	2,500	2,500
Purchases - All made in cash			(49,700)	(70,300)	(79,600)
Rent			(3,200)	(3,200)	(3,200)
Wages & Salaries - 8% previous month sales			(4,800)	(5,584)	(6,384)
Cash Dividend Paid				(2,600)
Repayment of Principal & Interest				(4,200)
Cash Purchase of Equipment					(5,900)
Taxes				(5,800)
Net Cashflow			4,332	(19,840)	(11,567)
Opening Balance			4,500	8,832	4,500
Total			8,832	(11,008)	(7,067)
Borrowing done to maintain min. cash bal.				15,508	11,567
Closing Balance			8,832	4,500	4,500

2) Interpretation of Cash Budget -

For the month of May the entity has positive cashflow, whereas for the month of June and July the entity has negative cashflow due to Capital Expenditure and payment of Dividend and Taxes. In the month of June and July entity has to make external borrowing to maintain it's desired minimum cash balance at $4500.