Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,300 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $300, but Koehl has agreed to maintain an average bank balance of $6,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $110,000.

	Sales		Purchases
December	$150,000		$45,000
January	50,000		45,000
February	56,000		45,000

1. Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.

December January February S S Sales (Collections) s 56000 150000 50000 S S Purchases $ 45000 > 45000 45000 s S Payments for purchases $ 110000 45000 g 45000 S S Salaries S 4300 4300 4300 s 5 Rent 2000 2000 2000 $ Taxes 10000 s s Total payments S 51300 126300 51300 S Cash at start of forecast 300 $ S Net cash flow 23700 -1300 S S Cumulative cash balance S 31400 24000 22700 S S Target cash balance S 6500 6500 6500 S $ Surplus cash or loans needed $ 24900 17500 16200 lli