I have a question about preparing a cash budget.

Here's the question:

January February March
Cash receipts $98,000 $108,000 $124,000

Cash payments:
For inventory purchases 92,000 72,000 84,000
For Selling & Administrative expenses 30,000 32,000 28,000

Guldry Medical had a cash balance of $9,000 on January 1. The company desires to maintain a cash cushion of $4,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 1 percent per month. Repayments may be made in any amount available. Guldry pays its vendor on the last day of the month also. The company had a $40,000 beginning balance in its line of credit liability account.


So far what I have is:

Cash Budget January
Beginning cash balance 9,000
Add: Cash receipts 98,000

Cash available 107,000

Less: Cash payments
For inventory purchases 92,000
For Selling & Admin expenses 30,000
Interest expense at 1% per month 400

Total budgeted payments 122,400

Payments minus receipts
Surplus (shortage) (15,400)
Financing activity
Borrowing (repayment) ?

Ending cash balance ?


I just want to know how do I find the Repayment/Borrowing amount...
I just don't understand it.

They're going to be in the hole 15,400 and they want to have a positive balance of 4000. How much do they need to get from (15,400) to 4000? Remember they need 15,400 just to get to nothing, plus another 4000.

Since it's borrowed in 1000 increments you would have to round your answer up to the next 1000.

As for borrowing repayment... with what?

Can you try from here?

okay I got the rest for January.

which was the repayment of $20,000 and ending balance of $4,600.

So this is a revised version of where I am at:

Cash Budget - January; February
Beginning cash balance: 9,000; 4600
Add: Cash receipts: 98,000; 108000

Cash available: 108000; 112600

Less: Cash payments -
For inventory purchases: 92,000; 72000
For Selling & Admin expenses: 30,000; 32000
Interest expense at 1% per month: 400; ?

Total budgeted payments: 122,400

Payments minus receipts:
Surplus (shortage): (15,400)
Financing activity:
Borrowing (repayment): 20,000

Ending cash balance: 4,600


Ok, so how do I find the interest amount for February?
Is it just the January repayment of 20,000 X 1% for February interest amount?

I'm not sure.

Ok, so how do i find the interest amount for February?
Is it just the January repayment of 20,000 X 1% for February interest amount?


$60,000. Don't forget you still have the $40,000 from January in there and nothing of it has been paid. You'll have to keep a running balance of that off to the side or something.