Question

Sadat company LTD has two bills payable of $55,000 and $60,000 with due dates of 30th June and 31st July 2020 respectively. The company wishes to arrange with it's bankers for any necessary re-financing in advance:

a) to pay the bills on their due dates
b) to provide a minimum end of month cash balance of $15,000.

You are also given the following information:

i) The projected sales and purchases

SALES    ($).                       PURCHASES.     ($)

March.   65,000

April.      90,000.                April.               57,000

May.       65,000.                May.                45,000

June.     68,000.                June.               51,000

July.      75,000.                 July.                42,000

ii) The cash balance on 1st May 2020 will be $18,000

iii) All sales are on terms of a 2% discount allowed on any payments made by the 10th of the month following the sales. past experience indicates 70% of the sales are collected within the first 10days; 20% during the remainder of the first month, and 8% in the second month following the sales. 2% of the sales are considered irrecoverable.

iv) All payments for purchases qualify for 2% discount. Two-thirds of the invoices will be paid in the month of the purchase, and one-third in the month following the purchase.

v) operating expenses are $6,000 per month and is paid for, when they are incurred.

vi) The company receives $1,500 monthly from property rentals.

vii) $2,500 will be realised in July from the sale of obsolete equipment

QUESTIONS
Prepare a cash budget for the month of May, June, and July 2020 showing the amount of additional borrowing that will be required.

Answer 1

Additional Borrowing for june ;- $7310

Additional Borrowing For July :- $40652