BSPR 210B – Entrepreneurship, Management and Business

Practices

Solution - Tutorial – Chapter 12

1. A cash budget:
a. is based on the cash method of accounting.
b. is a “cash map,” showing the amount and the timing of cash flowing into and
out of the business over a given period of time.
c. will never be completely accurate since it is based on forecasts.
d. All of the above

d. – See Page 430

2. On March 10th , a business owner receives an invoice from a supplier for $416.27
with “net 30” credit terms marked on it. On April 7th , the owner writes the supplier
a check for $416.27 and mails it. When would this cash disbursement show up on
the company's cash budget?
a. March 10th
b. March 30th
c. April 7th
d. April 10th

c. – See Page 431

3. In a cash budget, credit sales to customers are recorded at the time the sale is made.

False – See Page 431

Mini-Case 12-3: Rent-A-Nerd Computer Consultants
The owners of Rent-A-Nerd Computer Consultants have prepared the partial cash budget
for the upcoming quarter:

CASH BUDGET – RENT-A-NERD COMPUTER CONSULTANTS

Month 1 Month 2 Month 3

Cash Receipts:
Total Sales $42,650 $45,500 $47,000
Credit Sales 25,590 27,300 28,200
Collections:
10 percent same month 2,559 2,730 2,820
80 percent next month 19,941 20,472 21,840
8 percent following month 1,864 1,994 2,048

Cash Sales 17,060 18,200 18,800

Total Cash Receipts 41424 43396 45508

Cash Disbursements:
Purchases $32,404 $33,267 $35,490
Wages/Salaries 4,212 4,897 5,126
Rent/Utilities 1,865 1,910 2,250
Other 2,400 3,750 6,105

Total Cash Disbursements 40881 43824 48971

End of Month Balance:

Beginning Cash $4,750 5293 4865
Cash Receipts 41424 43396 45508
Cash Disbursement 40881 43824 48971

EOM Balance 5293 4865 1402

Borrow 0 0 2598
Repay _______ _______ _______
Questions

Calculate the final end-of-month balance for months 1-3 and answer the following
questions.

138. How much would Rent-A-Nerd have to borrow if its desired minimum cash balance
is $4,000?
a. $2,224 in Month 3
b. Nothing. Rent-A-Nerd's end of the month cash balance is below $4,000.
c. $2,598 in Month 3
d. $20,771 in Month 3

Answer: c.