Cash Budget - estimates cash inflows and outflows, to determine whether there is a cash shortfall, and whether the company will be required to borrow money. College Supplies Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: Total cash receipts Total cash disbursements Q1 100,000 Q2 90,000 Q3 160,000 Q4 140,000 220,000 90,000 60,000 150,000 The company's beginning cash balance for the upcoming fiscal year will be $60,000. The company requires a minimum cash balance of $20,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 2% (or 8% annual interest rate). The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. a Prepare the company's cash budget for the upcoming fiscal year by quarter. Show the reconciliation for total year, as well. Beginning cash balance Total cash receipts Total cash available Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance Q1 Q2 Q3 Q4 Year b Looking at the quarter the borrowings were paid back, why were they not paid back sooner?
Cash Budget - estimates cash inflows and outflows, to determine whether there is a cash shortfall, and whether the company will be required to borrow money. College Supplies Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: Total cash receipts Total cash disbursements Q1 100,000 Q2 90,000 Q3 160,000 Q4 140,000 220,000 90,000 60,000 150,000 The company's beginning cash balance for the upcoming fiscal year will be $60,000. The company requires a minimum cash balance of $20,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 2% (or 8% annual interest rate). The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. a Prepare the company's cash budget for the upcoming fiscal year by quarter. Show the reconciliation for total year, as well. Beginning cash balance Total cash receipts Total cash available Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance Q1 Q2 Q3 Q4 Year b Looking at the quarter the borrowings were paid back, why were they not paid back sooner?
Chapter6: Managing Cash Flow
Section: Chapter Questions
Problem 1EP
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Transcribed Image Text:Cash Budget - estimates cash inflows and outflows, to determine whether there is a cash shortfall, and whether
the company will be required to borrow money.
College Supplies Depot is a retailer that is preparing its budget for the upcoming fiscal year.
Management has prepared the following summary of its budgeted cash flows:
Total cash receipts
Total cash disbursements
Q1
100,000
Q2
90,000
Q3
160,000
Q4
140,000
220,000
90,000
60,000
150,000
The company's beginning cash balance for the upcoming fiscal year will be $60,000.
The company requires a minimum cash balance of $20,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 2% (or 8% annual interest rate).
The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter.
Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.
a Prepare the company's cash budget for the upcoming fiscal year by quarter.
Show the reconciliation for total year, as well.
Beginning cash balance
Total cash receipts
Total cash available
Total cash disbursements
Excess (deficiency) of cash available over disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance
Q1
Q2
Q3
Q4
Year
b Looking at the quarter the borrowings were paid back, why were they not paid back sooner?
c Looking at the budgeted cash inflows and outflows given in the problem, can you make any
recommendations on how they could try to avoid borrowings in the future?
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