Prepare A Cash Budget You Are Provided With The Following

Prepare A Cash Budgetso 8 Apyou Are Provided With The Followin

Prepare a cash budget. (SO 8), AP You are provided with the following information taken from Washburne Inc.'s March 31, 2012, balance sheet. Cash $11,000 Accounts receivable $20,000 Inventory $36,000 Property, plant, and equipment, net of depreciation $120,000 Accounts payable $22,400 Common stock $150,000 Retained earnings $11,600 Additional information concerning Washburne Inc. is as follows. 1. Gross profit is 25% of sales. 2. Actual and budgeted sales data: March (actual) $46,000 April (budgeted) $70,000. Sales are both cash and credit. Cash collections expected in April are: March $18,000 (39% of $46,000), April 42% of $70,000 ($29,400). 3. Half of a month's purchases are paid for in the month of purchase and half in the following month. Purchases and cash disbursements expected in April are: Purchases March $22,400, Purchases April $28,100. 4. Cash operating costs are anticipated to be $11,200 for the month of April. 5. Equipment costing $2,500 will be purchased for cash in April. 6. The company wishes to maintain a minimum cash balance of $9,000. 7. An open line of credit is available. Borrowing occurs at the beginning of the month, and repayments are made at the end of the month. The annual interest rate is 12%, and interest expense is accrued at the month-end and paid the following month. Instructions: Prepare a cash budget for April and determine how much cash Washburne Inc. must borrow or can repay in April, noting the expected borrowings of $1,800.

Paper For Above instruction

Developing an accurate cash budget is vital for assessing the liquidity and operational efficiency of a company. For Washburne Inc., preparing the cash budget for April involves analyzing current balances, projected cash inflows and outflows, and external financing options to maintain the desired cash balance. This process enables management to plan for potential borrowing needs or to identify opportunities for repayments, ensuring the company can meet its financial obligations without unnecessary borrowing costs.

Starting with the opening cash balance, which is $11,000 as of March 31, 2012, the projected cash inflows primarily include collections from customers. Based on historical data, they expect to collect 39% of March sales ($46,000), totaling $18,000, and 42% of April sales ($70,000), totaling $29,400. These collections sum to $47,400, which will be recognized as cash inflow for April. The combination of previous and current sales collections provides a reliable estimate of cash receipts for the month.

On the cash outflows side, purchases for March and April are expected to be $22,400 and $28,100, respectively. Since half of each month’s purchases are paid for in the same month, and the other half in the following month, the cash payments include the current month’s purchases plus half of the previous month’s purchases. Specifically, for April, cash disbursements for purchases include half of March purchases ($11,200) and half of April purchases ($14,050), totaling $25,250. Additionally, operating costs are projected at $11,200, and equipment purchase costs amount to $2,500. The total cash disbursements, therefore, are calculated by summing these expenses.

Calculating the total outflows results in expenses for April: purchases ($25,250), operating costs ($11,200), equipment ($2,500), summing to $38,950. The beginning cash balance plus total inflows ($47,400) minus total disbursements gives the pre-adjusted cash balance. If this sum falls below the minimum required cash balance of $9,000, the company needs to borrow additional funds, which is facilitated through an open line of credit. The borrowing process considers interest on the borrowed amount, calculated at an annual rate of 12%. The interest for April is accrued at month-end, based on the amount borrowed and the duration, and paid the following month.

In this scenario, the cash budget indicates that Washburne Inc. must borrow $1,800 to meet its minimum cash requirement of $9,000, considering the planned expenses and collections. The borrowing is made at the beginning of April, and repayment, along with accrued interest, is due at month-end. Managing these cash flows diligently ensures the company’s liquidity and optimal use of external financing options, ultimately safeguarding its operational stability and financial health.

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