Question

Sports for Success is a not for profit organization that provides programming for young people. It is expanding with a new sports building. They want to start a bit of the construction before they go out and collect money for the building. They have yet to hire a new controller and asked for volunteers to help them get through the next few months. You volunteer. It is critical to be sure the organization can pay bills and salaries on time. Sports for Success gives you the expected cash receipts, cash disbursements and expense information below: October November December $10,000 $20,000 $25,000 Monthly cash receipts from membership Cash disbursement for salaries Cash disbursement for miscellaneous expenses Depreciation on equipment Construction expenses $7,500 $3,000 $7,500 $5,000 $10,000 $15,000 $2,000 $24,000 $2,000 $10,000 $2,000 $7,500 Knowing your background, the Treasurer asks you to prepare a cash budget. Sports for Success has an open line of credit with the bank with the following restrictions: • They must maintain a minimum balance of $10,000. • All borrowing is done at the beginning of a month and all repayments are made at the end of a month. • Borrowings and repayments of principal must be in multiples of $1,000 • 100% of Pledges are collected. • Interest is paid only at the time of repayment of principal. The annual interest rate is 12% (figure interest on whole months (e.g. 1/12 for one month, 3/12 for three months.) or $300) • On September 30, Sports for Success has a cash balance of $12.000 and has yet to borrow on its line of credit. • The line of credit has a limit of $100,000.

Answer 1

Case I								Case II (Receiving of Donation of $ 50000)
Cash Budget of Sports for success								Cash Budget of Sports for success
			(Amount in $)								(Amount in $)
Particulars	October	November	December					Particulars	October	November	December
Cash Budget								Cash Budget
Beginning Cash balance	12000	17500	15000					Beginning Cash balance	12000	12500	10000
Monthly cash receipts	10000	20000	25000					Monthly cash receipts	10000	20000	25000
Other cash receipts	0	0	0					Other cash receipts	0	0	50000
Total cash available	22000	37500	40000					Total cash available	22000	32500	85000
Disbursement Salaries	7500	7500	10000					Disbursement Salaries	7500	7500	10000
Misc.	3000	5000	15000					Misc.	3000	5000	15000
Construction	24000	10000	7500					Construction	24000	10000	7500
Total Disbursement	34500	22500	32500					Total Disbursement	34500	22500	32500
Excess/(Deficiency) of cash	-12500	15000	7500					Excess/(Deficiency) of cash	-12500	10000	52500
Financing:-								Finacing
Borrowings	30000	0	3000					Borrowings	25000	0	0
Repayment	0	0	0					Repayment	0	0	25000
Interest	0	0	0					Interest	0	0	900
Ending cash balance	17500	15000	10500					Ending cash balance	12500	10000	26600
Minimum cash balance required	10000	10000	10000	Minimum balance required				Minimum cash balance required	10000	10000	10000
Assumption:-
It is assumed that Interest cost to be paid higher of Interest @12% or $300 per month.
So keep interest cost at minimal opt $ 30000 & $ 3000 loan in October & December month.