Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year. CashReceipts CashpaymentsJanuary$525,000 $475,000 February 400,000 350,000 March 450,000 525,000 According to a credit agreement with its bank, Kayak requires a minimum cash balance of $30,000 at each month-end. In return, the bank has agreed that the company can borrow up to $150,000 at a monthly interest rate of 1%, paid on the last day of each month. The interest is computed based on the beginning balance of the loan for the month. The company repays loan principal with any cash in excess of $30,000 on the last day of each month. The company has a cash balance of $30,000 and a loan balance of $60,000 at January 1.
Prepare monthly cash budgets for each of the first three months of next year.

Answer 1

Answer:

Kayak Co.

Cash Budgets for three months:

                                                   January       February         March

Beginning Balance                    $30,000        $30,000         $58,694

Loan Balance                             -60,000          -10,600          0

Cash Receipts                          525,000         400,000        450,000

Cash Payments                       -475,000        -350,000       -525,000

Interest on Loan                             -600                -106         0

Loan  Receipt (Payment)            10,600           -10,600           46,306

Ending Balance                         30,000           58,694           30,000

Explanation:

A cash budget is an estimate of the cash payments and cash receipts.  It helps management to know when to borrow funds to meet required minimum cash balance and when to repay borrowed funds.  It is an important managerial tool for making decisions on the management of the company's cash flows.