Question

4. Transcript Company is preparing a cash budget for June. The company has $125,000 cash at the beginning of the month and anticipates having total sales of $1,222,000, consisting of 25% cash sales and 75% credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 150 percent of the cost of purchases and pays the cost of each month's sales at the end of the month.

Other cash disbursements are $66,000 per month, 4 percent of the total sales and the cash

purchase of a new tractor for $125,000. In addition, a $545,000 note will be due this month for

equipment purchased last year. Transcript Company has an agreement with its bank to maintain

a cash balance of $125,000.

Required: What is the cash balance and what amount, if any, must the company borrow during

June?

Beginning cash balance	$125,000
Cash receipts:-
Cash sales = 1,222,000* 25%	$305,500
Credit card sales = 1,222,000*75%*97%	$889,005
Total Cash Available	$1,319,505
Cash disbursements:
Note payable	$545,000
Purchases = 1,222,000/ 150%	$814,667
Other cash expenses:
Fixed expenses	$66,000
Variable expenses = 1,222,000*4%	$48,880
Total Cash disbursements	$1,474,547
Cash shortage	$155,042
Required minimum balance	$125,000
Required borrowing	$280,042

Answer 1

Cash Balance means the total amount of money in a financial account, calculated by adding all deposits to the initial deposit and deducting all disbursements or payments made. Net cash balance can be positive, if money is available; or negative if the account has been overdrawn. In the given case cash is in negative and transcript company has to borrow the funds/cash from bank.

Cash Balance for June
Sources of Cash
Opening Cash Balance	$125,000
Sales: Cash Sales: $1,222,000*25% = $3,05,500             Credit Card Sales: $1,222,000*75% = $916,500	$1,222,000
Total Cash Receipts (A)	$1,347,000
Application of Cash
Purchases ($1,222,000/150%)	$814,667
Bank Charges for Credit card deposits ($916,500*3%)	$27,495
Other cash disbursements	$66,000
Other variable cash expenses ($1,222,000*4%)	$48,880
Purchase of New Tractor	$125,000
Equipment purchased last year	$545,000
Minimum Cash at Bank	$125,000
Total Cash Payments (B)	$1,752,042
Excess/(Shortage) (A-B)	($405,042)

Thus, there is an cash shortage of $405,042 for the transcript company for running of its operations and the same has to be borrow from Bank.