Question

Grenoble Enterprises had sales of $50,000 in March and
$60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and
$100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes
to maintain a minimum cash balance of $5,000. Given the following data, prepare
and interpret a cash budget for the months of May, June, and July.
(1) The firm makes 20% of sales for cash, 60% are collected in the next month,
and the remaining 20% are collected in the second month following sale.
(2) The firm receives other income of $2,000 per month.

Answer 1

Answer:

Find the attached the cash budget of Grenoble Enterprises .

The total collections at the end of the month are $61000,$66000 and $78000 for the months of May,June and July respectively.

Explanation:

It is noteworthy that the cash budget only deals with the collection side.For us to have a clear a picture of balances at the end of each of the relevant months,monthly expenses need to be included.

However,the company had the lowest cash in May and the highest in July,invariably it would make a cash flow sense to plan more expenditure in the month of July and less in the month of May.

The assumptions used for cash collection did not factor in the likelihood of customer's default on payment dates,hence more realistic assumptions,incorporating what is realistically possible would better enhance the business cash flow and aid decision making process.