The LBJ Company has budgeted sales revenues as follows.

April May June

Credit sales $94,000 $89,500 $75,000

Cash sales 48,000 75,000 57,000

Total sales $142,000 $164,500 $132,000

Past experience indicates that 30% of the credit sales will be collected in the month of sale and the remaining 70% will be collected in the following month.

Purchases of inventory are all on credit; 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $195,000 in April, $135,000 in May, and $63,000 in June.

Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b) sale of new common stock for $50,000 in June. Other budgeted cash disbursements: (a) operating expenses of $15,000 each month, (b) selling and administrative expenses of $10,150 each month, (c) purchase of equipment for $35,000 cash in May, and (d) dividends of $20,000 will be paid in June.

The company has a cash balance of $20,000 at the beginning of May and wishes to maintain a minimum cash balance of $20,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 10%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of May 1.

Requirements:

1. Use this information to prepare a cash budget for the months of May and June, using the template provided in Doc Sharing.

2. What are the three sections of a cash budget, and what is included in each section?

3. Why is a cash budget so vital to a company?

4. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash?

SCHEDULE OF EXPECTED CASH COLLECTIONS FROM CUSTOMERS
Credit Sales			May	June
April
May
June
Total Cash Collections			-	-
SCHEDULE FOR EXPECTED PAYMENTS FOR PURCHASE OF INVENTORY
Inventory purchases			May	June
April
May
June
Total Payments for Inventory Purchases			-	-
	LBJ Company
	Cash Budget
	For the Two Months of May and June
			May	June
Cash balance
Add: Receipts
Collections from customers			0	0
Sale of plant assets
Sale of new common stock
Cash sales
Total receipts			0	0
Total Available Cash			0	0
Less: Disbursements
Purchases of inventory			0	0
Operating expenses
Selling and administrative expenses
Equipment purchase
Dividends
Total disbursements			-	-
Excess (deficiency of available cash over disbursements)			-	-
Financing
Borrowings
Repayments
Ending cash balance			$0	-