Question

Newman Medical Clinic has budgeted the following cash flows.

	January			February			March
Cash receipts	$	101,000		$	107,000		$	127,000
Cash payments
For inventory purchases		90,500			72,500			85,500
For S&A expenses		31,500			32,500			27,500

Newman Medical had a cash balance of $8,500 on January 1. The company desires to maintain a cash cushion of $6,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 2 percent per month. Repayments may be made in any amount available. Newman pays its vendors on the last day of the month also. The company had a monthly $40,000 beginning balance in its line of credit liability account from this year’s quarterly results.

Required

Prepare a cash budget. (Any repayments/shortage should be indicated with a minus sign. Round your answers to the nearest whole dollar amount.)

Answer 1

--Requirement, asked

Cash Budget	January	February	March
Beginning cash balance	$                 8,500.00	$                       6,700.00	$                                          6,000.00
Add: Cash receipts	$             101,000.00	$                   107,000.00	$                                      127,000.00
Cash available	$             109,500.00	$                   113,700.00	$                                      133,000.00
Less: Cash payments
For inventory purchases	$               90,500.00	$                     72,500.00	$                                        85,500.00
For S&A expenses	$               31,500.00	$                     32,500.00	$                                        27,500.00
Interest expense	$                     800.00	$                       1,200.00	$                                          1,170.00
Total budgeted payments	$             122,800.00	$                   106,200.00	$                                      114,170.00
Payments minus receipts
Surplus (Deficit)	$             (13,300.00)	$                       7,500.00	$                                        18,830.00
Financing Activity
Borrowing (repayment)	$               20,000.00	$                     (1,500.00)	$                                      (12,830.00)
Ending cash balance	$                 6,700.00	$                       6,000.00	$                                          6,000.00