Answered: prepare and interpret a cash budget for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and $100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $10,000.

Given the following data, prepare and interpret a cash budget for the months of May, June, and July.

The firm makes 30% of sales for cash, 60% are collected in the next month, and the remaining balance is collected in the second month following the sale.
The firm's actual or expected purchases, all made for cash, are $50,000, $70,000, and 580,000 for the months of May through July, respectively.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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