Part 5

Cash Budgeting
Landis Company has the following sales forecasts for the selected three-month period in the current year:
Month Sales
April $12,000
May 7,000
June 8,000

Seventy percent of sales are collected in the month of the sale, and the remaining balance is collected in the following month.
Accounts Receivable balance (April 1) $10,000
Cash balance (April 1) 5,000
Minimum cash balance is $5,000. Cash can be borrowed in $1,000 increments from the local bank (assume no interest charges). Calculate the expected cash balance at the end of April and May, assuming that cash is received only from customers and that $16,000 is paid out during April and 14,000 is paid out during May

To calculate the expected cash balance at the end of April and May, we need to consider the sales, collection patterns, accounts receivable balance, cash balance, and expenses.

Let's start with the Cash Budget for April:

1. Beginning Cash Balance (April 1): $5,000
2. Cash Receipts from Sales:
- 70% of April Sales (70% of $12,000) collected in April: $8,400
- 30% of April Sales collected in May: $12,000 * 30% = $3,600
- Total Cash Receipts in April: $8,400 + $3,600 = $12,000

3. Cash Disbursements:
- Expenses paid in April: $16,000
- Net Cash Disbursements in April: $16,000

4. Ending Cash Balance (April 30):
- Beginning Cash Balance: $5,000
- Cash Receipts: $12,000
- Cash Disbursements: $16,000
- Ending Cash Balance: ($5,000 + $12,000) - $16,000 = $1,000

Now, let's calculate the Cash Budget for May:

1. Beginning Cash Balance (May 1): $1,000 (the ending cash balance from April).

2. Cash Receipts from Sales:
- 70% of May Sales (70% of $7,000) collected in May: $4,900
- 30% of May Sales collected in June: $7,000 * 30% = $2,100
- Total Cash Receipts in May: $4,900 + $2,100 = $7,000

3. Cash Disbursements:
- Expenses paid in May: $14,000
- Net Cash Disbursements in May: $14,000

4. Ending Cash Balance (May 31):
- Beginning Cash Balance: $1,000
- Cash Receipts: $7,000
- Cash Disbursements: $14,000
- Ending Cash Balance: ($1,000 + $7,000) - $14,000 = -$6,000

In summary, the expected cash balance at the end of April is $1,000 and the expected cash balance at the end of May is -$6,000. This means that in May, there will be a cash shortfall of $6,000, which will need to be covered by borrowing from the bank.