Question

At the beginning of the school year, Craig Kovar 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)	$7,060
Purchase season football tickets in September	100
Additional entertainment for each month	250
Pay fall semester tuition in September	3,800
Pay rent at the beginning of each month	340
Pay for food each month	190
Pay apartment deposit on September 2 (to be returned December 15)	500
Part-time job earnings each month (net of taxes)	880

a. Prepare a cash budget for September, October, November, and December. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.

Craig Kovar
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	$	$	$	$

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

c. What are the budget implications for Craig Kovar?

Craig can see that his present plan   sufficient cash. If Craig did not budget but went ahead with the original plan, he would be $   at the end of December, with no time left to adjust.

Answer 1

a.

Cash Budget ($)

	September	October	November	December
Estimated Cash Receipts:
Apartment Deposit				500
Partime Job earnings	880	880	880	880
Total Cash receipts (A)	880	880	880	1,380
Purchase of season ticket	100
Additional entertainment	250	250	250	250
Semester Tution	3,800
Rent	340	340	340	340
Food	190	190	190	190
Apartment deposit	500
Total Cash expenses (B)	5,180	780	780	780
Total Cash Increase/(decrease) (A-B)	-4300	100	100	600
Opening Cash balance	7,060	2,760	2,860	2,960
Ending Cash Balance	2,760	2,860	2,960	3,560

b. Cash budgets are absolutely FLEXIBLE Budgets since the items very every month as presented above.

c. Cash Balance at end of December: $ 3560

Spring Tution Fees: $3,800

Hence Short of $ 240 (ie 3,800-3,560)

Craig can see that his present plan DOESNOT HAVE sufficient cash. If Craig did not budget but went ahead with the original plan, he would be $ 240 SHORT  at the end of December, with no time left to adjust.