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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

The accountant for Jean’s Dress Shop prepared the following cash budget. Jean’s desires to maintain a cash cushion of $10,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 1 percent per month.

Required

Complete the cash budget by filling in the missing amounts.
Determine the amount of net cash flows from operating activities Jean’s will report on the third quarter pro forma statement of cash flows.

Determine the amount of net cash flows from financing activities Jean’s will report on the third quarter pro forma statement of cash flows.a.

Cash Budget	July	August	September
Section 1: Cash receipts
Beginning cash balance	$25,000
Add cash receipts	90,000	100,000	120,300
Total cash available	115,000
Section 2: Cash payments
For inventory purchases	82,750	70,115	87,076
For S&A expenses	27,250	30,280	30,716
For interest expense	0
Total budgeted disbursements	110,000
Section 3: Financing activities
Surplus (shortage)	5,000
Borrowing (repayments)	5,000
Ending cash balance	$10,000	$0	$0

b.

Net cash (operating activities)

Net cash (financing activities)

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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