1. ACCT504 Week 6 Case Study 3 on Cash
Budgeting
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Acct504 (FI504) Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D and you
read Chapter 7. There is also a practice case study to work on. Your Professor
will provide the solution to the practice case study at the end of Week 5. This
case study should be uploaded by 11:59PM Mountain time of the Sunday ending
Week 6 to the Week 6 Assignment Dropbox. You are encouraged to use the
Excel template file provided in Doc Sharing.
The LBJ Company has budgeted sales revenues as follows:
April May June
Credit sales $94,000 $89,500 $75,000
Cash sales 48,000 75,000 57,000
Total sales $142,000 $164,500 $132,000
Past experience indicates that 30% of the credit sales will be collected in the
month of sale and the remaining 70% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase
and 60% in the month following purchase. Budgeted inventory purchases are
$195,000 in April, $135,000 in May, and $63,000 in June.
Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b)
sale of new common stock for $50,000 in June. Other budgeted cash
disbursements: (a) operating expenses of $15,000 each month, (b) selling and
administrative expenses of $10,150 each month, (c) purchase of equipment for
$19,000 cash in June, and (d) dividends of $20,000 will be paid in June.
The company has a cash balance of $20,000 at the beginning of May and wishes
to maintain a minimum cash balance of $20,000 at the end of each month. An
open line of credit is available at the bank and carries an annual interest rate of
10%. Assume that all borrowing is done on the first day of the month in which
financing is needed and that all repayments are made on the last day of the
month in which excess cash is available. Also assume that there is no
outstanding financing as of May 1.
Requirements:

2. 1. Use this information to prepare a Cash Budget for the months of May and
June, using the template provided in Doc Sharing.
2. What are the three sections of a Cash Budget, and what is included in each
section?
3. Why is a Cash Budget so vital to a company?
4. What are the five basic principles of cash management that a company can
follow in order to improve its chances of having adequate cash?