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 has frequently run 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 just how much she must 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 $2,200 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $750, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard cash in the till, 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	$120,000		$40,000
January	38,000		40,000
February	68,000		40,000

Prepare a cash budget for December, January, and February.

I. Collections and Purchases:
	December	January	February
Sales	$	$	$
Purchases	$	$	$
Payments for purchases	$	$	$
Salaries	$	$	$
Rent	$	$	$
Taxes	$	---	---
Total payments	$	$	$
Cash at start of forecast	$	---	---
Net cash flow	$	$	$
Cumulative NCF	$	$	$
Target cash balance	$	$	$
Surplus cash or loans needed	$	$	$