I am not sure how to create this cash budget. I have included the beginning cash

Question

I am not sure how to create this cash budget. I have included the beginning cash balance as cash on hand at the end of the month, however then there is no need for a bank loan. Also I am not sure how to include the loan if the loan is based off of net increase/decrease in cash.

Ling Supply, a family-owned durable medical equipment store, began January with $10,200 cash. Management forecasts that collections from credit customers will be $11,700 in January and $15,000 in February. The store is scheduled to receive $7,000 cash on a business note receivable in January. Projected cash payments include inventory purchases ($14,500 in January and $13,900 in February) and selling and administrative expenses ($2,900 each month). Ling Supply’s bank requires a $10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Ling Supply borrows as little as possible and pays back loans in quarterly installments of $2,500, plus 5% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Ling Supply’s cash budget for January and February.

2. How much cash will Ling Supply borrow in February if collections from customers that month total $14,000 instead of $15,000?

Explanation / Answer

1) Cash Budget

2) If collection from customers in february is $ 14000 instead of $ 15000 then borrowing amount will be $ 2000.

Particulars January February ( $) ( $) Beginning Cash Balance           10,200            11,500 Add: Receipts Collections from customers           11,700            15,000 Notes Receivable             7,000                     -   Total Cash available           28,900            26,500 Less: Disbursements Direct Material Purchase           14,500            13,900 Selling & Administrative Expense             2,900              2,900 Total Disbursements           17,400            16,800 Cash Surplus / (deficit)           11,500              9,700 Financing: Borrowing                    -                1,000 Net Cash from financing                    -                1,000 Payment of Installment                    -                       -   Interest paid                    -                       -   Cash ending balance           11,500            10,700

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