Sunland Company expects to have a cash balance of $62,450 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

1. Collections from customers: January $87,450, February $162,450.
2. Payments to suppliers: January $56,450, February $91,450.
3. Wages: January $31,370, February $41,370. Wages are paid in the month they are incurred.
4. Administrative expenses: January $22,370, February $25,370. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5. Selling expenses: January $16,370, February $21,370. These costs are exclusive of depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $13,370 in cash. Sunland Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $36,450.

Prepare a cash budget for January and February.

Borrowing Amount required (to make ending balance =$36,450) for January is 0 and February is $14.850. Cash Budget prepared in explanation below.

Explanation:

Cash Budget for the month of January and February

Particulars                                                                 January      February

Opening Cash Balance                                                  62,450        37,710

Add: Collections from Customers                            87,450        162,450

Add: Sale of Short term Investments                       13,370               0

Total Cash Available                                                  163,270       200,160

Less: Payment to Suppliers                                     (56,450)         (91,450)

Less: Wages                                                              (31,370)          (41,370)

Less: Administrative Expenses                                 (21,370)         (24,370)

Less: Selling Expenses                                              (16,370)         (21,370)

Total Payments Made                                            (125,560)     (178,560)

Total Cash after Payments                                           37,710          21,600

Add: Borrowings                                                              0               14,850

Ending Cash Balance                                                 $37,710      $36,450

Please Note the Following:

1. Administrative Expenses have been reduced by $1,000 (as this was depreciation which is non-cash expense)

2. Borrowings in February has been added by $14,850 (in order to maintain company's minimum monthly cash balance of $36,450

3. All the totaling has been marked in Bold Letters

CASH BUDGET FOR                             JANUARY                FEBRUARY

Receipts

Cash collected from customers            $87,450                  $162,450

Sale of short term investment               $13,370

Loan Received                                                                        $14,850

Total Receipts                                        $100,820                 $177,300

Payments

Cash Paid to Suppliers                         $56,450                   $91,450

Wages                                                   $31,370                     $41,370

Admin expenses                                  $21,370                     $24,370

Selling Expenses                                 $16,370                     $21,370

Total Payments                                    $125,560                  $178,560

Cash Surplus/ Deficit                         -$24,740                   -$1,260

opening balance( 01 Jan)                   $62,450                    $37,710

Closing balance (31 Jan)                    $37,710                      $36,450

Explanation:

Cash Budget is a statement used to  determine how much cash a business have at the end of a period and is it sufficient or not. Only Cash items are included in the Cash budget.

The Admin expenses include depreciation therefore we minus it as it is not a cash item.

In order to maintain the minimum monthly cash balance the company had to take out a loan in February of $14,850.

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