Question

At the beginning of the school year, Katherine Malloy 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)	$7,550
Purchase season football tickets in September	100
Additional entertainment for each month	260
Pay fall semester tuition in September	4,100
Pay rent at the beginning of each month	370
Pay for food each month	210
Pay apartment deposit on September 2 (to be returned December 15)	500
Part-time job earnings each month (net of taxes)	940

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	$	$	$	$

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

(static, flexible)

c. Malloy can see that her present plan (will, 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				940	940	940	940
	Refund of apartment deposit							500
	Total cash receipts			a	940	940	940	1440
	Less estimated cash payments for:
	Purchase season football tickets				100
	Additional entertainment				260	260	260	260
	Pay fall semester tuition				4100
	Pay rent				370	370	370	370
	Pay for food				210	210	210	210
	Pay apartment deposit				500
	Total cash payments			b	5540	840	840	840
	Cash increase (decrease)			a-b	-4600	100	100	600
	Add cash balance at the beginning of month				7550	2950	3050	3150
	Cash balance at end of month				2950	3050	3150	3750
b.	Static budget
c.	Spring semester tution=fall semester tution=$ 4100
	Cash balance at end of December=$ 3750
	Shortage=4100-3750=$ 350
	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 $ 350 short at the end of December, with no time left to adjust.