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# 1

Cash Budget

##  It represents a detailed plan of future cash flows and

is composed of four elements: (cash receipts, cash
disbursements, net change in cash for the period
and new financing needed
Budget Period
 No strict rules for determining the length of the
budget period
 GENERAL RULE: it should be long enough to show
th effect of management policies, yet short enough
so that estimates can be made with reasonable
accuracy
2
Cash Budget
 Used to determine monthly needs and surpluses for
cash during the planning period
 Examines timing of cash inflows and outflows i.e.
when checks are written and when deposits are
 Payments to suppliers are typically made some time
 Receipts from credit customers are received some
time after sale is recorded.
3
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures. Taxes are due in March and amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet the bank’s line of credit
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They have a policy to repay short term debt in any month its cash
balance exceeds the minimum desired balance of \$25,000. Prepare a cash
budget for Halsey.
4
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75Collection
percent of itsoffinal sales. The
January supplier is paid one month after delivery.
Sales
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures.
Nov Taxes are due
Dec Janin March and amount to \$10,000.
Feb Mar As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet bank’s line of credit
agreement. Halsey can
Sales 130,000 borrow short
125,000 term from its
120,000 bank at a cost
260,000 of 1/2% per
140,000
month. They have a policy to repay short term debt in any month its cash
balance exceeds the minimum desired 36,000balance of \$25,000. Prepare a cash
budget for Halsey.
120,000x.30
5
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75Collection
percent of itsoffinal sales. The
January supplier is paid one month after delivery.
Sales
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures.
Nov Taxes are due
Dec Janin March and amount to \$10,000.
Feb Mar As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet bank’s line of credit
agreement. Halsey can
Sales 130,000 borrow short
125,000 term from its
120,000 bank at a cost
260,000 of 1/2% per
140,000
month. They have a policy to repay short term debt in any month its cash
balance exceeds the minimum desired 36,000balance of60,000
\$25,000. Prepare a cash
budget for Halsey.
120,000x.30 120,000x.50
6
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75Collection
percent of itsoffinal sales. The
January supplier is paid one month after delivery.
Sales
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures.
Nov Taxes are due
Dec Janin March and amount to \$10,000.
Feb Mar As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet bank’s line of credit
agreement. Halsey can
Sales 130,000 borrow short
125,000 term from its
120,000 bank at a cost
260,000 of 1/2% per
140,000
month. They have a policy to repay short term debt in any month its cash
balance exceeds the minimum desired 36,000balance of60,000 24,000
\$25,000. Prepare a cash
budget for Halsey.
120,000x.30 120,000x.50 120,000x.20
7
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month followingJanuary
Determine the sale, and the remaining 20 percent two months following
Collections
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in any month its cash
36,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance of \$25,000. Prepare a cash
budget for Halsey.
2nd Month (20%) 120,000x.30
Total Collections
8
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month followingJanuary
Determine the sale, and the remaining 20 percent two months following
Collections
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in any month its cash
36,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000. Prepare a cash
budget for Halsey.
2nd Month (20%) 125,000x.50
Total Collections
9
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month followingJanuary
Determine the sale, and the remaining 20 percent two months following
Collections
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in any month its cash
36,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000. Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000 130,000x.20
Total Collections
10
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month followingJanuary
Determine the sale, and the remaining 20 percent two months following
Collections
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in any month its cash
36,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000. Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000
Total Collections 124,500
11
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
Determine February Collections
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000. Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000
Total Collections 260,000x.30124,500
12
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
Determine February Collections
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000
Total Collections 120,000x.50124,500
13
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
Determine February Collections
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000 25,000
Total Collections 125,000x.20124,500
14
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
Determine February Collections
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000140,000
to meet bank’s line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
budget for Halsey.
2nd Month (20%) 26,000 25,000
Total Collections 124,500 163,000
15
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the Determine
remainingMarch Collections
20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000
to meet bank’s 140,000
line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
42,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
budget for Halsey. 140,000x.30
2nd Month (20%) 26,000 25,000
Total Collections 124,500 163,000
16
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the Determine
remainingMarch Collections
20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount
Februaryto \$10,000.
MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000
to meet bank’s 140,000
line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
42,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
130,000
budget for Halsey. 260,000x.50
2nd Month (20%) 26,000 25,000
Total Collections 124,500 163,000
17
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the Determine
remainingMarch Collections
20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000
to meet bank’s 140,000
line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
42,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
130,000
budget for Halsey. 120,000x.20
2nd Month (20%) 26,000 25,000 24,000
Total Collections 124,500 163,000
18
Cash Budget
Problem-- Determine Collections
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. TheCash Budget
supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 Halsey Enterprises
per month for rent and \$12,000 each month
for other expenditures.
NovemberTaxes December
are due in March
Januaryand amount to \$10,000.
February MarchAs of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balanceSales 130,000
of \$25,000 must be125,000
maintained120,000 260,000
to meet bank’s 140,000
line of credit
Collections:
agreement. Halsey can borrow short term from its bank at a cost of 1/2% per
month. They
Monthhave a policy
of Sale to repay short
(30%) term debt in78,000
36,000 any month its cash
42,000
balanceFirst
exceeds
Month the(50%)
minimum desired balance
62,500 of \$25,000.
60,000 Prepare a cash
130,000
budget for Halsey.
2nd Month (20%) 26,000 25,000 24,000
Total Collections 124,500 163,000 196,000
19
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
forPayments
other expenditures.
for Taxes Purchases
January are due in March and amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet bank’s line of credit
agreement.NovHalsey can Dec Jan
borrow short term from itsFeb
bank at a costMar
of 1/2% per
month. They have a policy to repay short term debt in any month its cash
balance
Sales exceeds
130,000 the125,000
minimum desired
120,000balance 260,000
of \$25,000. Prepare
140,000a cash
budget for Halsey.
90,000
75% of January Sales Purchased in
November
20
Cash Budget
Problem
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
forPayments
other expenditures.
for Taxes Purchases
January are due in March and amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained to meet bank’s line of credit
agreement.NovHalsey can Dec Jan
borrow short term from itsFeb
bank at a costMar
of 1/2% per
month. They have a policy to repay short term debt in any month its cash
balance
Sales exceeds
130,000 the125,000
minimum desired
120,000balance 260,000
of \$25,000. Prepare
140,000a cash
budget for Halsey.
90,000
90,000 75% of January Sales Purchased in
November, Paid for in December
21
Cash Budget
Problem-- Determine Material Purchases
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures. Taxes Determine January
are due in March andPayments
amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained
Cash Budgetto meet bank’s line of credit
agreement. Halsey can Halsey short term from its260,000x.75
borrow Enterprises bank at a cost of 1/2% per
month. They have a policy to repay short term debt in any month its cash
November
balance exceeds December
the minimum January
desired balance February March a cash
of \$25,000. Prepare April
budget
Salesfor Halsey.
130,000 125,000 120,000 260,000 140,000 140,000
Purchases 195,000
Payments 195,000
22
Cash Budget
Problem-- Determine Material Purchases
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures. Taxes Determine February
are due in March Payments
and amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained
Cash Budgetto meet bank’s line of credit
agreement. Halsey can Halsey short term from its140,000x.75
borrow Enterprises bank at a cost of 1/2% per
month. They have a policy to repay short term debt in any month its cash
November
balance exceeds December
the minimum January
desired balance February March a cash
of \$25,000. Prepare April
budget
Salesfor Halsey.
130,000 125,000 120,000 260,000 140,000 140,000
Purchases 195,000 105,000
Payments 195,000 105,000
23
Cash Budget
Problem-- Determine Material Purchases
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures. Taxes Determine Marchand
are due in March Payments
amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained
Cash Budgetto meet bank’s line of credit
agreement. Halsey can Halsey short term from its140,000x.75
borrow Enterprises bank at a cost of 1/2% per
month. They have a policy to repay short term debt in any month its cash
November
balance exceeds December
the minimum January
desired balance February March a cash
of \$25,000. Prepare April
budget
Salesfor Halsey.
130,000 125,000 120,000 260,000 140,000 140,000
Purchases 195,000 105,000 105,000
Payments 195,000 105,000 105,000
24
Cash Budget
Problem-- Determine Material Purchases
Halsey Enterprises has projected its sales for the first four months of 1996 as
follows:
January \$120,000 March \$140,000
February \$260,000 April \$140,000
Halsey collects 30 percent of its sales in the month of sale, 50 percent in the
month following the sale, and the remaining 20 percent two months following
the sale. During November and December of 1995 Halsey’s sales were
\$130,000 and \$125,000, respectively.
Halsey purchases raw materials two months in advance of its sales equal to
75 percent of its final sales. The supplier is paid one month after delivery.
In addition, Halsey pays \$2,000 per month for rent and \$12,000 each month
for other expenditures. Taxes are due in March and amount to \$10,000. As of
December 31, 1995 the company’s cash balance was \$28,000; a minimum
balance of \$25,000 must be maintained
Cash Budgetto meet bank’s line of credit
agreement. Halsey can Halsey
borrow Enterprises
short term from its bank at a cost of 1/2% per
month. They have a policy to repay short term debt in any month its cash
November
balance exceeds December
the minimum January
desired balance February March a cash
of \$25,000. Prepare April
budget
Salesfor Halsey.
130,000 125,000 120,000 260,000 140,000 140,000
Purchases 195,000 105,000 105,000
Payments 195,000 105,000 105,000
25
Cash Budget
Problem-- Cash Inflows & Outflows
Cash Budget
Halsey Enterprises
January February March
Cash Collections 124,500 163,000 196,000
Material Payments 195,000 105,000 105,000

## Summary of Previous Sheets

26
Cash Budget
Problem-- Cash Inflows & Outflows
Cash Budget
Halsey Enterprises
January February March
Cash Collections 124,500 163,000 196,000
Material Payments 195,000 105,000 105,000
Other Payments:
Rent 2,000 2,000 2,000
Other Expenses 12,000 12,000 12,000
Tax Payments 0 0 10,000
Remaining Cash Outflows
27
Cash Budget
Problem-- Cash Inflows & Outflows
Cash Budget
Halsey Enterprises
January February March
Cash Collections 124,500 163,000 196,000
Material Payments 195,000 105,000 105,000
Other Payments:
Rent 2,000 2,000 2,000
Other Expenses 12,000 12,000 12,000
Tax Payments 0 0 10,000
Net Monthly Change (84,500) 44,000 67,000
28
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000
Ending Cash (No Borrow)
Needed (Borrowing)
Loan Repayment
Interest Cost
Ending Cash Balance
Cumulative Borrowing
29
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000
Ending Cash (No Borrow) (56,500)
Needed (Borrowing)
Loan Repayment
Interest Cost
Ending Cash Balance
Cumulative Borrowing
30
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000
Ending Cash (No Borrow) (56,500)
Needed (Borrowing)
Loan Repayment Target Ending Balance
Interest Cost
Ending Cash Balance 25,000
Cumulative Borrowing
31
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000
Ending Cash (No Borrow) (56,500)
Needed (Borrowing) 81,500
Loan Repayment
Interest Cost
Borrowing Required to
Ending Cash Balance 25,000
cover Minimum Balance
Cumulative Borrowing
and Deficit
56,500+25,000
32
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000
Ending Cash (No Borrow) (56,500)
Needed (Borrowing) 81,500
Loan Repayment 0
Interest Cost 0
Ending Cash Balance 25,000
Cumulative Borrowing 81,500
33
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000
Ending Cash (No Borrow) (56,500) 69,000
Needed (Borrowing) 81,500
Loan Repayment 0
Interest Cost 0
Ending Cash Balance 25,000
Cumulative Borrowing 81,500
34
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000
Ending Cash (No Borrow) (56,500) 69,000
Needed (Borrowing) 81,500 0
Loan Repayment 0
Interest Cost 0
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500
Target Ending Balance
35
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000
Ending Cash (No Borrow) (56,500) 69,000
Needed (Borrowing) 81,500 0
Loan Repayment 0
Interest Cost 0 408
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500

## Interest Incurred on Prior

Month Borrowing
81,500 x .005
36
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000
Ending Cash (No Borrow) (56,500) 69,000
Needed (Borrowing) 81,500 0
Loan Repayment 0 43,592
Interest Cost 0 408
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500

## Amount that can be

repaid from monthly
surplus
69,000 - 408 - 25,000
37
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000
Ending Cash (No Borrow) (56,500) 69,000
Needed (Borrowing) 81,500 0
Loan Repayment 0 43,592
Interest Cost 0 408
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500 37,908

## New Loan Balance

81,500 - 43,592
38
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0
Loan Repayment 0 43,592
Interest Cost 0 408
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500 37,908
39
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0 0
Loan Repayment 0 43,592
Interest Cost 0 408 190
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500 37,908

## Interest Incurred on Prior

Month Borrowing
37,908 x .005
40
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0 0
Loan Repayment 0 43,592 37,908
Interest Cost 0 408 190
Ending Cash Balance 25,000 25,000
Cumulative Borrowing 81,500 37,908

## Repay Outstanding Loan

Balance
41
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0 0
Loan Repayment 0 43,592 37,908
Interest Cost 0 408 190
Ending Cash Balance 25,000 25,000 53,902
Cumulative Borrowing 81,500 37,908 0

## Ending Cash Balance

92,000-37,908-190
42
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0 0
Loan Repayment 0 43,592 37,908
Interest Cost 0 408 190
Ending Cash Balance 25,000 25,000 53,902
Cumulative Borrowing 81,500 37,908 0

## Ending Cash Balance

\$28,902 Surplus
43
Cash Budget
Problem-- Analysis of Borrowing Needs
Cash Budget
Halsey Enterprises
January February March
Net Monthly Change (84,500) 44,000 67,000
Beginning Cash Balance 28,000 25,000 25,000
Ending Cash (No Borrow) (56,500) 69,000 92,000
Needed (Borrowing) 81,500 0 0
Loan Repayment 0 43,592 37,908
Interest Cost 0 408 190
Ending Cash Balance 25,000 25,000 53,902
Cumulative Borrowing 81,500 37,908 0

## Halsey needs to raise \$81,500 in short term debt in

January, would probably take out a short term bank loan.
In March has a 28,902 surplus, would probably invest in
marketable securities at this point in time
44
Cash Budget Practice Problem
PROJECTED SALES
November 62,000 February 80,000
December 50,000 March 85,000
January 60,000 April 70,000
 30% of sales are collected 1 month after the sale and the
70% is collected 2 months after the sale.
 Purchases is equal to 60% of sales and are made 1
month in advance of anticipated sales. Payments are
made in the month following the purchase.
 Salaries and wages are 4,000 monthly
 Rent and other expenses are 3,000 and 1,200
respectively
 Additional expenditure is the purchase of equipment for
10,000 in January and the repayment of an 8,000 loan in
march.
45
Cash Budget
Practice Problem
 In January, interest of 4,000 on its long-term debt is paid
 Interest on the 8,000 short-term loan equals 200 and is
paid in March
 Tax payment of 5,200 is made in March
 It has a beginning balance in January for 10,000 and
maintains a minimum balance of 10,000 for any shortfall in
net cash flow.
 Borrowing takes place at the beginning of the month in
which the fund is needed; Interest on borrowed funds is
equal to 1% per month and is paid in the month following
the month in which funds are borrowed
 There’s a policy to repay short term debt in any amount of
cash balance exceeds the minimum desired balance of
10,000.