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Cash Budget

 To illustrate the cash budget, let’s extend the ABT example by assuming the

following:

A. ABT requires a $!!,!!! minimum cash balance for the end of eachquarter. "n

#ecember , %!!&, the cash balance was $%!,!!!.B. 'oney can be borrowed and repaid in multiples of $!!,!!!. (nterest is

% percent

per year. (nterest payments are made only for the amount of the

principal being

repaid. All borrowing ta)es place at the beginning of a quarter, and all

repayment

ta)es place at the end of a quarter.

*. +alf of all sales are for cash half are on credit. "f the credit sales, -!percent are

collected in the quarter of sale, and the remaining ! percent are

collected in the

following quarter. The sales for the fourth quarter of %!!& were $%

million.#. urchases of materials are made on account /! percent of purchases

are paid for in

the quarter of purchase. The remaining %! percent are paid in the

following quarter.

 The purchases for the fourth quarter of %!!& were $0!!,!!!.1. Budgeted depreciation is $%!!,!!! per quarter for o2erhead.3. The capital budget for %!! re2ealed plans to purchase additional

equipment to

handle increased demand at a small plant in 4e2ada. The cash outlay

for the equipment, $5!!,!!!, will ta)e place in the 6rst quarter. The

company plans to 6nance the acquisition of the equipment with

operating cash, supplementing it with short7term loans as necessary.8. *orporate income taxes are approximately $5!!,!!! and will be paid

at the end of  

the fourth quarter 9refer to chedule ;.

8i2en the preceding information, the cash budget for ABT is shown in

chedule % 9all

6gures are rounded to the nearest thousand;.

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