Question

santos company is preparing a cash budget for february. the company has $16,000 cash at the beginning of february and budgets $66,000 in cash receipts from sales and $102,000 in cash payments during february. prepare the cash budget for february assuming the company maintains a $4,000 minimum cash balance and will take a loan if necessary to maintain this balance. the company has no loans outstanding on february 1.
note: negative preliminary cash balances, if any, should be entered as a negative value.

santos company
cash budget
february
beginning cash balance
total cash available
preliminary cash balance
loan activity
ending cash balance
loan balance, end of month

Explanation:

Identify given values and budget structure

We are preparing a cash budget for Santos Company for February. The given values are:

• Beginning cash balance: \( \$16,000 \)
• Budgeted cash receipts: \( \$66,000 \)
• Budgeted cash payments: \( \$102,000 \)
• Minimum cash balance required: \( \$4,000 \)
• Outstanding loan balance on February 1: \( \$0 \)

Calculate total cash available

To find the total cash available before disbursements, we add the beginning cash balance to the budgeted cash receipts:

$$ \text{Total cash available} = \text{Beginning cash balance} + \text{Cash receipts} $$

$$ \text{Total cash available} = \$16,000 + \$66,000 = \$82,000 $$

Calculate preliminary cash balance

The preliminary cash balance is calculated by subtracting the budgeted cash payments from the total cash available:

$$ \text{Preliminary cash balance} = \text{Total cash available} - \text{Cash payments} $$

$$ \text{Preliminary cash balance} = \$82,000 - \$102,000 = -\$20,000 $$

As noted in the instructions, negative preliminary cash balances should be entered as a negative value.

Determine loan activity and ending cash balance

The company requires a minimum cash balance of \( \$4,000 \). Since the preliminary cash balance is \( -\$20,000 \), the company must borrow enough to cover the deficit and reach the minimum balance:

$$ \text{Required Loan Amount} = \text{Minimum cash balance} - \text{Preliminary cash balance} $$

$$ \text{Required Loan Amount} = \$4,000 - (-\$20,000) = \$24,000 $$

Thus, the loan activity (borrowing) is \( \$24,000 \).
The ending cash balance will be:

$$ \text{Ending cash balance} = \text{Preliminary cash balance} + \text{Loan activity} = -\$20,000 + \$24,000 = \$4,000 $$

Determine ending loan balance

Since the company had no loans outstanding on February 1, and borrowed \( \$24,000 \) during February, the loan balance at the end of the month is:

$$ \text{Loan balance, end of month} = \$24,000 $$

Answer:

No.	Row Label	Value
2	Cash receipts	\(\$66,000\)
3	Total cash available	\(\$82,000\)
4	Cash payments	\(\$102,000\)
5	Preliminary cash balance	\(-\$20,000\)
6	Loan activity	\(\$24,000\)
7	Ending cash balance	\(\$4,000\)
8	Loan balance, end of month	\(\$24,000\)