Karim Corp. requires a minimum $8,000 cash balance. Loans taken to meet this requirement cost 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $8,400, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. July August September Cash receipts $ 20,000 $ 26,000 $ 40,000 Cash payments 28,000 30,000 22,000 Prepare a cash budget for July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Answer and Explanation:

The preparation of cash budget for July, August and September is shown below:-

July August September

Beginning cash balance $8,400 $8,000 $8,000

Add:

Cash receipts $20,000 $26,000 $40,000

Total cash available $28,400 $34000 $48000

Less:-

Cash payments $28,000 $30,000 $22,000

Less:-

Interest on bank loan 0 $76 $117

Preliminary cash balance $400 $3,924 $25,883

Additional loan (loan repayment) $7,600 $4,076 - $11,676

Ending cash balance $8,000 $8,000 $14,207

Loan balance

Loan balance - Beginning of month 0 $7,600 $11,676

Additional loan (loan repayment) $7,600 $4,076 - $11,676

loan balance-end of month $7,600 $11,676 0

Working note

Interest = $7600 * 1% = $76

Interest = $11,676 * 1% = $117

Therefore for making cash budget we simply added all the receipts and less all the payments.