Question

Esquire Products Inc. expects the following monthly sales:

January	\(28,000
February	\)19,000
March	\(12,000
April	\)14,000
May	\(8,000
June	\)6,000
July	\(22,000
August	\)26,000
September	\(29,000
October	\)34,000
November	\(42,000
December	\)24,000
Total annual sales	\(264,000

Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

d. Construct a cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is \)3,000, which is also the minimum desired.

Short answer

The budgeted cash for January is $7,800 and December is $43,800.

Step-by-step solution

Importance of cash budget

The cash budget is important to evaluate the operational and financial stability of the organization. This budget also helps in maintaining the organization’s liquidity.

Cash budget

	January	February	March	April	May	June
Net cash flow	$4,800	$6,000	($2,200)	($5,600)	($6,800)	($11,200)
Beginning cash	$3,000	$7,800	$13,800	$11,600	$6,000	$3,000
Cumulative cash balance	$7,800	$13,800	$11,600	$6,000	($800)	($8,200)
Monthly loan (repayment)	$0	$0	$1	$0	$3,800	$11,200
Cumulative loan	$0	$0	$0	$0	$3,800	$15,000
Ending cash balance	$7,800	$13,800	$11,600	$6,000	$3,000	$3,000

	July	August	September	October	November	December
Net cash flow	($6,000)	$5,200	$8,800	$12,600	$18,800	$16,400
Beginning cash	$3,000	$3,000	$3,000	$3,000	$8,600	$27,400
Cumulative cash balance	($3,000)	$8,200	$11,800	$15,600	$27,400	$43,800
Monthly loan (repayment)	$6,000	($5,200)	($8,800)	($7,000)	$0	$0
Cumulative loan ending cash balance	$21,000	$15,800	$7,000	$0	$0	$0
Ending cash balance	$3,000	$3,000	$3,000	$8,600	$27,400	$43,800

Working notes

1. $\mathit{N}\mathit{e}\mathit{t}\mathbf{}\mathit{C}\mathit{a}\mathit{h}\mathbf{}\mathit{f}\mathit{l}\mathit{o}\mathit{w}\mathbf{=}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{r}\mathit{e}\mathit{c}\mathit{e}\mathit{i}\mathit{p}\mathit{t}\mathit{s}\mathbf{-}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{p}\mathit{a}\mathit{y}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathit{s}$

2.$\mathit{C}\mathit{u}\mathit{m}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{i}\mathit{v}\mathit{e}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{b}\mathit{a}\mathit{l}\mathit{a}\mathit{n}\mathit{c}\mathit{e}\mathbf{=}\mathit{N}\mathit{e}\mathit{t}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{f}\mathit{l}\mathit{o}\mathit{w}\mathit{s}\mathbf{+}\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{b}\mathit{a}\mathit{l}\mathit{a}\mathit{n}\mathit{c}\mathit{e}$