Question

The Thunder Dan's Corporation's purchases from suppliers in a quarter are equal to 65 percent of the next quarter's forecasted sales. The payables period is 60 days. Beginning accounts payables is $200. Wages, taxes, and other expenses are 16 percent of sales, and interest and dividends are $60 per quarter. No capital expenditures are planned. Sales for the first quarter of the following year are projected at $720. The receivables period is 45 days. Beginning accounts receivables is $150. Initial cash balance is $70, the corporation requires a minimum cash balance of $50. The projected quarterly sales are: Q1, $690; Q2, $660; Q3 $590; Q4, $560. Based on the information, please construct the cash budget table for the following 4 quarters. Please indicate if the short term financing is needed.

Answer 1

	Formula	Q1	Q2	Q3	Q4	Q5
Sales (S)		690.00	660.00	590.00	560.00	720.00
Purchases (P)	(Sn+1*65%)	429.00	383.50	364.00	468.00
Inflow:
Beginning receivables (BR)		150.00	345.00	330.00	295.00
Sales (S)		690.00	660.00	590.00	560.00
Cash collection (CC)	(BR + 0.5*S)	(495.00)	(675.00)	(625.00)	(575.00)
Ending receivables (A)	(BR+S+CC)	345.00	330.00	295.00	280.00
Outflow:
Beginning payables (BP)		200.00
Payment of accounts (PA)	(2/3*Pn) + (1/3*Pn-1)	486.00	398.67	370.50	433.33
Wages, taxes & others (O)	(16%*S)	110.40	105.60	94.40	89.60
Long-term financing expenses (LTE)		60.00	60.00	60.00	60.00
Total cash disbursements (B)	(PA + O + LTE)	656.40	564.27	524.90	582.93
Cash inflow (CI)	(A-B)	(311.40)	(234.27)	(229.90)	(302.93)
Beginning cash balance (BC)		70.00	(241.40)	(475.67)	(705.57)
Cash inflow (CI)		(311.40)	(234.27)	(229.90)	(302.93)
Ending cash balance (EC)	(BC + CI)	(241.40)	(475.67)	(705.57)	(1,008.50)
Minimum cash balance (MCB)		(50.00)	(50.00)	(50.00)	(50.00)
Surplus/(deficit)	(EC + MCB)	(291.40)	(525.67)	(755.57)	(1,058.50)

The company requires short-term financing as it is ending Q4 with a deficit of 1,058.50