Question

Prepare a monthly cash budget for January through April. Be sure to clearly show the surplus (deficit) of cash.

Based on the deficit cash shown on your cash budget, what is the dollar amount that Bond Private Security should have for a line of credit over this 4-month period? Note: don’t add a “cushion”, just base this amount off of the cash budget.

Collections during month of sale				35%
Collections during month after sale				50%
Collections during second month after sale				13%
Lease payments				$4,600
Target cash balance				$4,000
General and administrative salaries				$12,000
Depreciation charges				$3,500
Tax payments (March)				$6,500
Miscellaneous expenses				$2,470
Cash on hand January 1				$5,500
			November	December	January	February	March	April	May
Original sales estimates			$85,000	$72,000	$68,000	$54,000	$41,000	$30,000	$37,000
Original labor and raw mat. estimates				$51,000	$40,500	$30,750	$22,500	$27,750

Answer 1

Line of credit required = $ 4,710

Bond Private Security Cash Budget
	January	February	March	April
Beginning Cash balance	$ 5,500	$ 6,280	$ 8,970	$ 4,000
Add: Cash Receipts	70,850	62,260	50,190	38,020
Total Cash Available	76,350	68,540	59,160	42,020
Less: Cash Disbursements for
Labor and Raw Materials	51,000	40,500	30,750	22,500
Lease Payments	4,600	4,600	4,600	4,600
General and Administrative Salaries	12,000	12,000	12,000	12,000
Miscellaneous Expenses	2,470	2,470	2,470	2,470
Tax payments	0	0	6,500	0
Total Cash Disbursements	70,070	59,570	56,320	41,570
Surplus ( Deficiency) of cash available over cash disbursements	$ 6,280	$ 8,970	2,840	450
Target Cash Balance	4,000	4,000	4,000	4,000
Borrowings required	$ 0	$ 0	$1,160	$3,550

Workings:

Schedule of Expected Cash Collections from Sales
	January	February	March	April
November sales	11,050	0	0	0
December sales	36,000	9,360	0	0
January sales	23,800	34,000	8,840	0
February sales	0	18,900	27,000	7,020
March sales	0	0	14,350	20,500
April sales	0	0	0	10,500
Total cash collections	$ 70,850	$ 62,260	$ 50,190	38,020