Question

At the beginning of the school year, Katherine Malloy decided to prepare a A budget of estimated cash receipts and payments.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)	$8,840
Purchase season football tickets in September	120
Additional entertainment for each month	310
Pay fall semester tuition in September	4,800
Pay rent at the beginning of each month	430
Pay for food each month	240
Pay apartment deposit on September 2 (to be returned December 15)	600
Part-time job earnings each month (net of taxes)	1,100

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

KATHERINE MALLOY
Cash Budget
For the Four Months Ending December 31
	September	October	November	December
Estimated cash receipts from:
Part-time job	$	$	$	$
Deposit
Total cash receipts	$	$	$	$
Estimated cash payments for:
Season football tickets	$
Additional entertainment		$	$	$
Tuition
Rent
Food
Deposit
Total cash payments	$	$	$	$
Overall cash increase (decrease)	$	$	$	$
Cash balance at beginning of month
Cash balance at end of month	$	$	$	$

Feedback

b. Are the four monthly budgets that are presented prepared as A budget that does not adjust to changes in activity levels.static budgets or A budget that adjusts for varying rates of activity.flexible budgets?

• Static
• Flexible

c. Malloy can see that her present plan

• will provide
• will not provide

sufficient cash. If Malloy did not budget but went ahead with the original plan, she would be $

• over
• short

at the end of December, with no time left to adjust

Answer 1

a.		Cash budget
					September	October	November	December
	Estimated cash receipts from:
	Part-time job earnings				1100	1100	1100	1100
	Refund of apartment deposit							600
	Total cash receipts			a	1100	1100	1100	1700
	Less estimated cash payments for:
	Purchase season football tickets				120
	Additional entertainment				310	310	310	310
	Pay fall semester tuition				4800
	Pay rent				430	430	430	430
	Pay for food				240	240	240	240
	Pay apartment deposit				600
	Total cash payments			b	6500	980	980	980
	Cash increase (decrease)			a-b	-5400	120	120	720
	Add cash balance at the beginning of month				8840	3440	3560	3680
	Cash balance at end of month				3440	3560	3680	4400
b.	Static budget
	Flexible budget is based on actual level of activity
c.	Spring semester tution=fall semester tution=$ 4800
	Cash balance at end of December=$ 4400
	Shortage=4800-4400=$ 1400
	Malloy can see that her present plan will not provide sufficient cash
	If Malloy did not budget but went ahead with the original plan, she would be $ 400 short at the end of December, with no time left to adjust.