Tran Co. expects to have a cash balance of $26,000 on January 1, 2007. Relevant

(SO 7) monthly budget data for the first two months of 2007 are as follows.

Collections from customers: January $70,000; February $160,000 Payments to suppliers: January $48,000; February $75,000 Salaries: January $35,000; February $40,000. Salaries are paid in the month they are incurred.

Selling and administrative expenses: January $27,000; February $39,000. These costs are exclusive of depreciation and are paid as incurred.

Sales of short-term investments in January are expected to realize $9,000 in cash.

Tran has a line of credit at a local bank that enables it to borrow up to $45,000. The company wants to maintain a minimum monthly cash balance of $25,000. Any excess cash above the $25,000 minimum is used to pay off the line of credit.

Instructions

(a) Jan. cash bal. $25,000

(a) Prepare a cash budget for January and February.

(b) Explain how a cash budget contributes to effective management.

Prepare a cash budget.