Castor, Inc., is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow: Budgeted April May June Sales $ 30,500 $ 41,500 $ 25,500 Cash payments for merchandise 23,200 15,300 15,700 Sales are 75% cash and 25% on credit. All credit sales are collected in the month following the sale. The March 31 balance sheet includes balances of $13,500 in cash, $13,500 in accounts receivable, $11,000 in accounts payable, and a $3,500 balance in loans payable. A minimum cash balance of $13,500 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 2% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and include sales commissions (5% of sales), shipping (3% of sales), office salaries ($4,500 per month), and rent ($6,500 per month). Prepare a cash budget for each of the months of April, May, and June. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Castor, Inc.

Cash Budget for the quarter ended June 30,

                                                  April           May           June

Beginning cash balance         $13,500   $16,165      $31,795

Cash collection  (25%)             13,500       7,625        10,375

Cash collection (75%)             22,875       31,125         19,125

Total cash receipts               $49,875    $54,915     $61,295

Cash payments for goods      23,200     15,300        15,700

Sales commission (5% sales)    1,525       2,075          1,275

Shipping cost (3% sales)              915        1,245            765

Office salaries                          4,500       4,500         4,500

Cash Disbursements           $30,140    $23,120    $22,240

Loans Payable (Repayment)  -3,570

Cash balance                       $16,165     $31,795    $39,055

Explanation:

A cash budget is a tool used by a company's management to forecast of the cash receipts and cash disbursements for a future period of time.  It is an important financial management tool that can be used to decide when to borrow cash to meet shortages and when to invest excess cash to generate income.  Through its preparation, management avoids liquidity problems which can ruin a business.

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