Cash Budgeting: Not-for-Profit Context (contributed by Helen M. Savage) Tri-Coun...

Cash Budgeting: Not-for-Profit Context (contributed by Helen M. Savage) Tri-County Social Service Agency is a not-for-profit organization in the Midwest. Use the following information to complete the cash budget for the year ending December 31, 2013.

• The Board of Trustees requires that Tri-County maintain a minimum cash balance of $8,000.

• If cash is short, the agency may borrow from an endowment fund enough to maintain the $8,000 minimum. (An “endowment fund” is an investment fund set up by a nonprofit entity [e.g., church, university, or hospital] and used either for ongoing operations or for purposes specified by the donor(s) to the fund. Such donations are generally tax deductible for the donors.) Repayment must be made as soon as possible. No interest is charged.

• It is anticipated that the year 2013 will begin with an $11,000 cash balance.

• Contract revenue is received evenly during the year.

• Mental health income is expected to grow by $5,000 in the second and third quarters, but not change in the fourth quarter.

Required

1. Within the context of a not-for-profit organization, what is an endowment fund?

2. Complete the cash budget for 2013, for each quarter and the year as a whole, using the template that follows.

3. Determine the amount that the agency will owe the endowment fund at year-end.

4. Does the borrowing indicate a problem? What options would the agency have to increase revenues?

5. Do you think that a requirement to pay interest on the borrowings would have a positive impact on the agency’s activities? Why or why not?