Question

Develop a cash budget based on the following information about a K–12 school. Its fiscal year runs from July 1 to June 30

Cash inflow: Federal sources: $300,000, paid in January

State sources: $300,000, paid bimonthly

Local sources: $200,000, paid semiannually in July and January

Cash outflow: Personnel services costs: $100,000

Contracted services: $10,000

School operations: $20,000

Facility operations & maintenance: $30,000

Assuming that the initial cash balance is $100,000 at the beginning of the school year and the cash safety margin is $10,000, what does the cash budget tell you?

Answer 1

The cash budget is prepared as below:

Cash Budget
	July	August	September	October	November	December	January	February	March	April	May	June
Opening Cash Balance	100,000	440,000	580,000	720,000	860,000	1,000,000	1,140,000	1,780,000	1,920,000	2,060,000	2,200,000	2,340,000
Add Cash Inflows
Federal Sources	0	0	0	0	0	0	300,000	0	0	0	0	0
State Sources (Assumed to be Total Amount Paid on Monthly Basis)	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000
Local Sources	200,000	0	0	0	0	0	200,000	0	0	0	0	0
Total Cash Available (A)	600,000	740,000	880,000	1,020,000	1,160,000	1,300,000	1,940,000	2,080,000	2,220,000	2,360,000	2,500,000	2,640,000
Less Cash Outflows
Personnel Service Costs	100,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000	100,000
Contracted Services	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000
School Operations	20,000	20,000	20,000	20,000	20,000	20,000	20,000	20,000	20,000	20,000	20,000	20,000
Facility Operations and Maintenance	30,000	30,000	30,000	30,000	30,000	30,000	30,000	30,000	30,000	30,000	30,000	30,000
Total Cash Outflows (B)	160,000	160,000	160,000	160,000	160,000	160,000	160,000	160,000	160,000	160,000	160,000	160,000
Ending Cash Balance	440,000	580,000	720,000	860,000	1,000,000	1,140,000	1,780,000	1,920,000	2,060,000	2,200,000	2,340,000	2,480,000
Cash Safe Margin	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000
Cash Shortage to Borrow or Surplus to Invest	430,000	570,000	710,000	850,000	990,000	1,130,000	1,770,000	1,910,000	2,050,000	2,190,000	2,330,000	2,470,000

Based on the above calculations and cash budget figures, we can conclude that the school has sufficient cash in hand at any point of time indicating that total cash available is higher than total cash outflows in every month The surplus amount available can be invested in other avenues to earn extra income.

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Notes/Assumptions:

1) Cash inflow from state sources is assumed to be $300,000 per month, that is, $150,000 received on a bimonthly basis.

2) Cash inflow from local sources is assumed to be $200,000 each paid in July and January.

3) All the form of cash outflows are assumed to be on a monthly basis.