Excel Activity: Cash Budgeting

Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2021 and 2022:

May 2021	$	140,000
June		140,000
July		280,000
August		420,000
September		560,000
October		280,000
November		280,000
December		70,000
January 2022		140,000

Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:

May 2021	$	70,000
June		70,000
July		84,000
August		686,000
September		210,000
October		182,000
November		112,000
December		70,000

General and administrative salaries are approximately $24,000 a month. Lease payments under long-term leases are $8,000 a month. Depreciation charges are $32,000 a month. Miscellaneous expenses are $3,600 a month. Income tax payments of $53,000 are due in September and December. A progress payment of $190,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $124,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Round your answers to the nearest dollar. If your answer is zero, enter "0".

Download spreadsheet Cash Budgeting-7ff8fe.xlsx

Prepare a monthly cash budget for the last 6 months of 2021. All payments and expenses should be entered as positive numbers. Net cash losses, negative cash balance, negative cumulative cash, and cumulative loans outstanding, if any, should be indicated by a minus sign.

	July	August	September	October	November	December
Collections and purchases worksheet
Sales (gross)
Collections
During month of sale			$ fill in the blank 10	$ fill in the blank 11		$ fill in the blank 13
During 1st month after sale			fill in the blank 16	fill in the blank 17		fill in the blank 19
During 2nd month after sale			fill in the blank 22	fill in the blank 23		fill in the blank 25
Total collections			$ fill in the blank 28	$ fill in the blank 29
Purchases
Labor and raw materials			$ fill in the blank 34	$ fill in the blank 35	$ fill in the blank 36
Payments for labor and raw materials			$ fill in the blank 40	$ fill in the blank 41	$ fill in the blank 42
Cash gain or loss for month
Collections			$ fill in the blank 46	$ fill in the blank 47	$ fill in the blank 48	$ fill in the blank 49
Payments for labor and raw materials	$ fill in the blank 50	$ fill in the blank 51	$ fill in the blank 52	$ fill in the blank 53	$ fill in the blank 54	$ fill in the blank 55
General and administrative salaries	fill in the blank 56	fill in the blank 57	fill in the blank 58	fill in the blank 59	fill in the blank 60	fill in the blank 61
Lease payments	fill in the blank 62	fill in the blank 63	fill in the blank 64	fill in the blank 65	fill in the blank 66	fill in the blank 67
Miscellaneous expenses	fill in the blank 68	fill in the blank 69	fill in the blank 70	fill in the blank 71	fill in the blank 72	fill in the blank 73
Income tax payments	fill in the blank 74	fill in the blank 75	fill in the blank 76	fill in the blank 77	fill in the blank 78	fill in the blank 79
Design studio payment	fill in the blank 80	fill in the blank 81	fill in the blank 82	fill in the blank 83	fill in the blank 84	fill in the blank 85
Total payments	$ fill in the blank 86	$ fill in the blank 87	$ fill in the blank 88	$ fill in the blank 89	$ fill in the blank 90	$ fill in the blank 91
Net cash gain (loss) during month			$ fill in the blank 94	$ fill in the blank 95	$ fill in the blank 96	$ fill in the blank 97
Loan requirement or cash surplus
Cash at start of month
Cumulative cash
Target cash balance
Cumulative surplus cash or loans
outstanding to maintain $90,000
target cash balance

Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. Required financing, if any, should be indicated by a minus sign.

	Required financing or
	excess funds
July
August
September
October
November
December

Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1/30 or 1/31 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects.

In a situation, where inflows and outflows are not synchronized during the month, it

isis not

likely to be possible to use a cash budget centered on the end of the month. To make a valid estimate of the peak financing requirements, the company

needs no additional actionsshould establish its maximum cash requirementshould establish its minimum cash requirementshould establish its average cash requirement

.

Bowers' sales are seasonal, and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the company's current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firm's ability to obtain bank credit? Explain.

The months preceding peak sales would show

an increaseda decreased

current ratio and

an increaseda decreased

debt-to-capital ratio due to additional short-term bank loans. In the following months as receipts are collected from sales, the current ratio would

decreaseincrease

and the debt-to-capital ratio would

decreaseincrease

. Abnormal changes in these ratios

wouldwould not

affect the firm's ability to obtain bank credit.

If Bowers' customers began to pay late, collections would slow down, thus increasing the required loan amount. If sales declined, this also would have an effect on the required loan. Do a sensitivity analysis that shows the effects of these two factors on the maximum loan requirement. Enter your answers as positive numbers.

To complete the sensitivity analysis, follow these steps in excel:

Ensure that cell A60 is a reference to cell B56 (i.e. =B56).

Select/highlight cells A60 through H69 (A60:H69).

From the top ribbon, select Data > Forecast > What-If-Analysis > Data Table

For row input cell click on cell B5 or enter $B$5.

For column input cell click on cell B14 or manually enter $B$14.

Click "Ok".

		% Collections in 2nd month
Change in sales		0%	15%	30%	45%	60%	75%	90%
-100	%	$ fill in the blank 135	$ fill in the blank 136	$ fill in the blank 137	$ fill in the blank 138	$ fill in the blank 139
-75	%	$ fill in the blank 142	$ fill in the blank 143	$ fill in the blank 144	$ fill in the blank 145	$ fill in the blank 146
-50	%	$ fill in the blank 149	$ fill in the blank 150	$ fill in the blank 151	$ fill in the blank 152	$ fill in the blank 153
-25	%	$ fill in the blank 156	$ fill in the blank 157	$ fill in the blank 158	$ fill in the blank 159	$ fill in the blank 160
0	%	$ fill in the blank 163	$ fill in the blank 164	$ fill in the blank 165	$ fill in the blank 166	$ fill in the blank 167
25	%	$ fill in the blank 170	$ fill in the blank 171	$ fill in the blank 172	$ fill in the blank 173	$ fill in the blank 174
50	%	$ fill in the blank 177	$ fill in the blank 178	$ fill in the blank 179	$ fill in the blank 180	$ fill in the blank 181
75	%	$ fill in the blank 184	$ fill in the blank 185	$ fill in the blank 186	$ fill in the blank 187	$ fill in the blank 188
100	%	$ fill in the blank 191	$ fill in the blank 192	$ fill in the blank 193	$ fill in the blank 194	$ fill in the blank 195