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Prepare a cash budget for January and February for Edge Soccer Program based on the provided financial information and assumptions. The budget should include beginning cash balances, cash receipts, cash payments, ending cash balances, and financing activities involving borrowing and repayment, considering the minimum cash balance requirement and interest calculations.

Paper For Above instruction

The cash budgeting process for Edge Soccer Program is crucial in maintaining financial stability and ensuring operational continuity during the first two months of the year. Based on the provided data, the first step involves analyzing the starting cash position, inflows, outflows, and any potential financing needs to meet minimum cash balance requirements.

Initially, the company begins January with a cash balance of $10,500, which exceeds the minimum requirement of $10,000. During January, the company expects to generate cash receipts of $11,000 from customers and $8,500 from a note receivable owed by a soccer club, totaling $19,500 in inflows. The planned cash payments for January include equipment purchases totaling $15,600 and operating expenses of $2,900, amounting to $18,500 in outflows. The preliminary calculation indicates that January will have a net cash increase of $1,000, resulting in an ending cash balance of $11,500, which still maintains the minimum required balance.

For February, the forecasted cash receipts amount to $15,200 from customers, while cash inflows from notes are not specified for this month. Cash outflows include equipment purchases of $14,800 and operating costs of $2,900, totaling $17,700. The initial cash projection suggests a shortfall of $2,500 compared to the minimum cash balance requirement. To address this shortfall, Edge will need to borrow funds from the bank.

The borrowing process involves extending credit in multiples of $1,000 whenever the cash balance falls below $10,000. Given the shortfall, Edge would need to borrow at least $3,000 to reach the minimum balance threshold of $10,000. It is essential to record this borrowing accurately, including any interest accrued, which is 4% and payable three months after the borrowing occurs. Since the current period is only January and February, the first repayment occurs in April, so interest for these two months does not need to be included in the current budget. The borrowed amount and the consistent monitoring of cash flows are vital to prevent liquidity issues.

The overall cash budget timeline demonstrates that in January, Edge has sufficient cash to cover expenditures, with a slight surplus. However, in February, without additional financing, the company faces a deficit that necessitates borrowing. The cash budget must incorporate these borrowings and repayments, along with the interest calculations, to ensure accurate short-term liquidity management.

In conclusion, preparing the cash budget involves summing up expected cash inflows and outflows, assessing the need for short-term financing, and planning the repayment schedule to maintain the required minimum cash balance. This strategic financial planning helps Edge Soccer Program ensure operational stability and avoid liquidity crises during the initial months of the fiscal year.

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