Question

At the beginning of the school year, Priscilla Wescott 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)	$7,200
Purchase season football tickets in September	100
Additional entertainment for each month	250
Pay fall semester tuition in September	3,900
Pay rent at the beginning of each month	350
Pay for food each month	200
Pay apartment deposit on September 2 (to be returned December 15)	500
Part-time job earnings each month (net of taxes)	890

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

Priscilla Wescott
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 Priscilla Wescott?

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

Answer 1

Solution

a)
Priscilla Wescott
Cash Budget
For the Four Months Ending December 31
	Sept.	oct.	Nov.	Dec.
Estimated cash receipts from:
Part-time job	$ 890	$ 890	$ 890	$ 890
Deposit				$     500
Total cash receipts	$ 890	$ 890	$ 890	$ 1390
Estimated cash payments for:
Season football tickets	$ 100
Additional entertainment	$ 250	$     250	$     250	$     250
Tuition	$ 3,900
Rent	$ 350	$ 350	$ 350	$ 350
Food	$     200	$     200	$     200	$     200
Deposit	$     500
Total cash payments	$  5,300	$ 800	$ 800	$ 800
Cash increase (decrease)	$ (4,410)	$ 90	$ 90	$ 590
Cash balance at beginning of month	$ 7,200	$ 2,790	$ 2,880	$  2,970
Cash balance at end of month	$ 2,790	$ 2,880	$  2,970	$  3,560
b) Static budgets
The four-month budgets do not change with any identified activity level so they are static budgets
c)
Priscilla Wescott can see that her present plan will not provide sufficient cash. If Priscilla Wescott did not budget but went ahead with the original plan, he would be ($3900 - $3560) $340 short at the end of December, with no time left to adjust

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