Question

At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

Cash balance, September 1 (from a summer job)	$6,220
Purchase season football tickets in September	80
Additional entertainment for each month	220
Pay fall semester tuition in September	3,400
Pay rent at the beginning of each month	300
Pay for food each month	170
Pay apartment deposit on September 2 (to be returned December 15)	400
Part-time job earnings each month (net of taxes)	770

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

Priscilla Wescott
Cash Budget
For the Four Months Ending December 31
	September	October	November	December
Estimated cash receipts from:
	$	$	$	$
Total cash receipts	$	$	$	$
Less estimated cash payments for:
	$
		$	$	$
Total cash payments	$	$	$	$
Cash increase (decrease)	$	$	$	$
Cash balance at end of month	$	$	$	$

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b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?

Static

c. What are the budget implications for Priscilla Wescott?

Priscilla can see that her present plan will not provide  sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $ short  at the end of December, with no time left to adjust.

Answer 1

Priscilla Wescott
Cash Budget
For the Four Months Ending December 31
	September	October	November	December
Balance as on September 1	$6220	$2420	$2500	$2580
Estimated cash receipts from:
Part time job earning	$770	$770	$770	$770
Appartment deposit refund				$400
Total cash receipts	$6990	$3190	$3270	$3750
Less estimated cash payments for:
Football Tickets	-$80
Additional Entertainment	-$220	-$220	-$220	-$220
Pay for fall semester	$-3400
Pay for spring semester				-$3400
Rent	-$300	-$300	-$300	-$300
Food	-$170	-$170	-$170	-$170
Deposit	-$400
Total cash payments	$4570	$690	$690	$4090
Cash balance at end of month	$2420	$2500	$2580	-$340

Answer to part b.

Static. Static Budgets are prepared irrespective of any change or fluctuation. Above cash budget is prepared to show cash position of Priscilla Wescott that whether she had cash surplus or cash deficit at the end of each month.

Answer to part c.

Priscilla can see that her present plan will not provide  sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $340 short  at the end of December, with no time left to adjust.