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) $6,720 Purchase season football tickets in September 90 Additional entertainment for each month 230 Pay fall semester tuition in September 3,600 Pay rent at the beginning of each month 320 Pay for food each month 180 Pay apartment deposit on September 2 (to be returned December 15) 500 Part-time job earnings each month (net of taxes) 830 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 $ $ $ $ Feedback Sometimes an item may be a decrease in one period and an increase in a different period. Review the definitions of static budgets and flexible budgets. What weaknesses are shown by this cash budget? b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets? Static c. 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 $ short at the end of December, with no time left to adjust. Feedback Sometimes an item may be a decrease in one period and an increase in a different period. Review the definitions of static budgets and flexible budgets. What weaknesses are shown by this cash budget?

Answer 1

a.

KATHERINE MALLOY
Cash Budget
For the Four Months Ending December 31
	September	October	November	December
Estimated cash receipts from:
Part-time job	830	830	830	830
Deposit				500
Total cash receipts	830	830	830	1330
Estimated cash payments for:
Season football tickets	90
Additional entertainment	230	230	230	230
Tuition	3600
Rent	320	320	320	320
Food	180	180	180	180
Deposit	500
Total cash payments	4920	730	730	730
Overall cash increase (decrease)	-4090	100	100	600
Cash balance at beginning of month	6720	2630	2730	2830
Cash balance at end of month	2630	2730	2830	3430

b. The four monthly budgets presented are prepared as static budgets.

c. 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 $170 ($3600 - $3430) short at the end of December, with no time left to adjust.