Question

Lumber River Corporation is studying its cash needs for April, May and June and has gathered the following information:

                                                            April               May                June

Sales                                                   $55,000           $58,000           $50,000

Purchases                                           $26,000           $21,000           $19,000

Cash Operating Costs                      $33,000           $32,000           $25,000

Beginning Balances for April in the Cash Account are $6,500; in Accounts Receivable $21,000; and in Accounts Payable $18,000.

Seventy percent of all customer accounts are collected in the month of sale; the remainder are collected the next month.

Forty percent of the purchases are paid for in the month of purchase, the remaining 60% are paid the following month.

Lumber River Corporation maintains a $5,000 minimum cash balance at all times. Should the balance fall below that, a line of credit is available at 1% per month interest. Assume that all borrowings take place at the beginning of a month and all repayments (including interest) are made at the end of a month. Interest is paid when a repayment is made. Repayments are not made in the same month that you borrow money.

REQUIRED:

Prepare a Cash Budget for April, May, and June.

Answer 1

Lumber River Corporation
Cash Budget for April to June
Particulars	April Amount $	May Amount $	June Amount $
Opening balance :	6,500	5,000	5,660
Collection from debtors (Note 1)	59,500	57,100	52,400
Borrowings	400	----	----
Total cash available (A)	66,400	62,100	58,060
Payment to creditors (Note 2)	28,400	24,000	20,200
Operating costs	33,000	32,000	25,000
Repayment of borrowings	----	400	----
Interest on borrowings	----	40	----
Total payments (B)	61,400	56,440	45,200
Closing balance (A - B)	5,000	5,660	12,860

Notes:

1. Received from debtors

Particulars	April	May	June
Cash collections
Current month sales	38,500	40,600	35,000
Previous month sales	21,000	16,500	17,400
Total collection	59,500	57,100	52,400

2. Payments to creditors

Particulars	April	May	June
For current month purchases	10,400	8,400	7,600
For previous month purchases	18,000	15,600	12,600
Total payment	28,400	24,000	20,200