The Wang Cash Budget For 2014 Date The Budget Simply 2014

The Wang Cash Budget For 2014 Date The Budget Simply 2014

Prepare the Wang cash budget for 2014. Date the budget simply “2014” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 2014 to be the same as 2013, but with the following changes: a. In 2014, the company expects a 20% increase in collections from customers and a 30% increase in purchases of inventory. b. There will be no sales of investments in 2014. c. Wang does not plan to issue stock in 2014. d. Wang plans to end the year with a cash balance of $5,550.

Paper For Above instruction

Developing a comprehensive cash budget is essential for any company to maintain liquidity, ensure operational continuity, and plan for future financial needs. The case of Wang in 2014 provides a compelling example of how managerial assumptions and forecasts influence cash planning. This paper presents a detailed projection of Wang’s cash flows for 2014, incorporating the specified changes from the previous year, 2013.

The first step in preparing Wang's cash budget involves understanding the starting cash balance and cash inflows and outflows projected for the year. As no explicit starting balance is provided, and consistent with typical practice, we assume the beginning cash balance for 2014 aligns with the ending balance of 2013. Given Wang's goal to end 2014 with a cash balance of $5,550, planning for cash inflows and outflows must balance to achieve this target while maintaining operational needs.

In 2014, Wang expects a 20% increase in collections from customers compared to 2013. If, for instance, the prior year's collections were $100,000, the new collections would be $120,000. This uptick reflects improved sales or collection efficiency. Conversely, purchases of inventory are anticipated to increase by 30%. For example, if last year's inventory purchases were $50,000, then the projected purchases for 2014 would be $65,000. These increases are critical as they directly affect cash disbursements, thereby impacting the net cash flow.

Since Wang does not plan to sell investments or issue new stock in 2014, cash inflows are primarily from operations—namely, collections from customers. This constrains cash inflows and accentuates the importance of careful management of cash disbursements. Regular disbursements include payments for inventory, operating expenses, and other operational costs. These expenditures are estimated based on historical data, adjusted for the expected increases.

The budget also considers planned cash payments for inventory, aligning with the increased purchase projection of $65,000. Other operating expenses—such as salaries, rent, and utilities—are presumed to follow historical trends with adjustments as needed. It is essential that the total disbursements, including inventory, operating expenses, and any debt service or capital expenditures, do not exceed cash inflows while meeting the target ending cash balance of $5,550.

The following simplified cash flow projection summarizes the critical components:

  • Beginning Cash Balance: assumed to equal the prior year's ending balance.
  • Total Cash Inflows: $120,000 (from collections, reflecting a 20% increase).
  • Total Cash Outflows: sum of projected inventory purchases ($65,000) and operational expenses (estimated at, for example, $50,000).
  • Net Cash Flow: inflows minus outflows, which should be managed to ensure the ending cash balance of $5,550.

Using this framework, the closing cash balance for 2014 will be calculated as:

Ending Cash Balance = Beginning Cash Balance + Net Cash Flows

Adjustments may be necessary in the monthly or quarterly allocations to ensure the ending balance goal is achieved without liquidity issues.

In conclusion, the preparation of Wang’s cash budget for 2014 involves systematic forecasting of cash receipts and disbursements based on anticipated growth figures and operational plans. The budget will serve as a pivotal tool for liquidity management, helping Wang to maintain sufficient cash reserves, meet operational needs, and avoid cash shortages throughout the year.

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