175
CHAPTER 11
CASH MANAGEMENT
INTRODUCTION
An understanding of the accrual concept of accounting makes one realize that the net income
figure on the income statement is not necessarily the equivalent of cash. For this reason, it is
important for a business to develop cash budgets from budgeted income statements. Chapter 9 on
budgeting will set the foundation and should be reviewed and studied as a necessary prerequisite
to this chapter. Chapter 10 should also provide insight into the techniques used in cash
management.
TRUE OR FALSE QUESTIONS
(Correct answer indicated by T for True and F for False answers)
1. The amount of cash that a company has on hand at any time is constantly fluctuating.
T
2. Cash management implies not only control of the cash account, but also control of all
other working capital accounts.
T
3. The amount of cash on hand at the end of an accounting period should agree with the
amount of net income for that period.
F
4. A cash budget helps in proper cash management.
T
5. Forecast income statements are the usual starting point in cash budgeting.
T
6. If annual property taxes were prepaid in January, and if monthly cash budgets were
being prepared, one twelfth of the taxes would show as a disbursement for each of the
twelve monthly cash budgets.
F
7. To prepare monthly cash budgets, it is necessary to know the normal pattern for
collection of accounts receivable.
T
8. Depreciation would show as a disbursement on a cash budget.
F
9. The main purpose of cash budgeting is to forecast cash surpluses and deficiencies.
T
10. A company preparing cash budgets that show certain months with cash shortages
(negative cash flow) may have difficulty borrowing short-term money.
T
11. Repayment of principal amounts on loans will show as a disbursement on a cash
budget.
T
12. A company should only have sufficient cash on hand on the premises to cover normal
day-to–day operations.
T
13. The difference between a company’s record of cash in the bank and the bank’s record
is known as a bank float.
T
176
14. A method of accelerating the flow of funds from individual units in a chain operation
to the company’s head office bank account is known as concentration banking.
T
15. In a hotel, accounts receivable comprises the city ledger accounts only.
F
16. The procedure of aging accounts receivable is carried out to indicate to management
when to write off accounts as bad debts.
F
17. The use of a bank lockbox is designed to speed up the collection of a company’s
accounts receivable.
T
18. The monthly food inventory turnover rate is calculated by dividing food cost for the
month into average food inventory during the month.
F
19. Average inventory is calculated by adding beginning and ending inventory figures
together and dividing by two.
T
20. Normal food inventory turnover is between two and four times a month.
T
21. A low inventory turnover rate indicates a low investment in inventory.
F
22. No restaurant could ever achieve a food inventory turnover rate as high as 20 or more
times in a month.
F
23. To conserve cash in a business, it is wise to pay accounts payable only after their due
date.
F
24. When converting required cash flow to an after-tax profit amount, loan payments are
deducted from cash flow and depreciation is added to the required cash flow.
F
MULTIPLE CHOICE QUESTIONS
(Correct answer indicated by asterisk)
1. Cash management should be practiced:
(a) To ensure that there is always a surplus of cash on hand
(b) Only buy companies with large inflows of cash
2. Cash management is:
(c) Asking stockholders how much they should be paid in cash dividends
(d) Selling goods and services on a cash basis only
3. If a company has an income of $5,000 (after depreciation but before income tax) during a
particular month, its bank account should have increased by:
(a) $5,000, plus depreciation, plus tax
(b) $5,000, plus depreciation
177
4. In cash budgeting, depreciation expense on the income statement is not shown as a cash
disbursement on a cash budget because:
(a) One has a choice of depreciation methods
(b) Depreciation is not really a business expense
5. Sales revenue in Month 1 of a new restaurant is forecast to be $60,000 and in Month 2
$75,000. Cost of sales is estimated to be 30% of sales revenue, with half the cost paid for in
the month of purchase, the other half in the following month. Month 2’s cash disbursement
for purchases is:
(c) $22,500
(d) $11,250
6. If a cash budget for the next six months showed that in Months 4 and 5 the closing bank
balance figure was negative, the company should:
(c) Use positive closing balances from Months 1, 2, and 3 to offset the Month 4 and 5 figures
(d) Not pay any invoices from Months 4 and 5 until the situation improves
7. Which of the following would not affect the annual cash budget, assuming there will be
disbursements for income tax?
(c) Purchasing new fixed assets
(d) Repaying a stockholder loan
8. Cash conservation implies:
(c) Not taking a discount for prompt payment of an account to conserve the cash for a longer
period in the bank
(d) Not allowing any customers to charge their accounts
9. The difference between a company’s record of cash in the bank and the bank’s record is
known as:
(c) Concentration banking
(d) Deficit financing
10. A method of accelerating the flow of funds from individual units in a chain operation to the
company’s head office is known as:
(c) Using lockboxes
(d) Centralized banking
178
11. A house account in a hotel is:
(a) Another name for a city ledger account
(b) A ledger account for the purchase of a house for employee accommodation
12. A schedule of aging of accounts shows:
(a) The individual balances of all accounts receivable
(b) The ages of guests who have unpaid accounts
13. A bank lockbox is used to:
(a) Avoid having to use bank float
(b) Avoid having to use concentration banking
14. A bar inventory turnover of 1/2 to 1 a month in an establishment, means that the inventory
turnover is:
(c) Twice a month
(d) Once every six months
15. If inventory turnover is increasing over time, and all other things remain equal, this means
that:
(a) More money is being tied up in inventory
(b) Purchases are being made less frequently
EXERCISE SOLUTIONS
E11.1 Determine if the discount on accounts payable should or should not be taken and discuss
your decision.
$7,500 x 3% = $225 if payment is made within 5 days discount period and should be
taken. If borrowing for 25 days at a 12% interest is considered to pay the $7,275 within
the discount period, the interest would be:
E11.2 Calculate sales revenue percentages by category.
March
Sales revenue
$48,200 = 100.0%
Cash sales revenue
$14,460 / $48,200 = 30.0%
Credit card sales revenue
$31,330 / $48,200 = 65.0%
Accounts receivable sales
$ 2,410 / $48,200 = 5.9%
Cash sales revenue decreased and sales revenue on credit cards increased.
179
E11.3 Calculate food inventory turnover and days of inventory available for March.
Beginning food inventories + Food purchases − Ending food inventories
Beginning food inventories + Ending food inventories
E11.4 Accounts receivable collections.Calculations are shown for Janauary
January
February
March
0-30 days
$21,100 / $27,500 = 76.7%
71.0%
67.8%
31-60 days
$ 4,900 / $27,500 = 17.8%
* 4.8%
26.1%
61-90 days
$ 1,000 / $27,500 = 3.7%
3.0%
4.3%
Over 90 days
$ 500 / $27,500 = 1.8%
1.3%
1.8%
* Item does not add due to rounding
Over the 3 months, a greater amount of the accounts have become past due in excess of
E11.5 Determine the transfer frequency for four motels.
Motel A: 2 × $3,200 = 4 days
$1,600
E11.6 Determine the minimum accounts receivable payment to make a lockbox system
profitable.
Bank charge per item
Opportunity cost percentage per day × Time savings in days
a. $0.20 $0.20 $365
(10.0% / 365) × 2 0.000547945
180
E11.7 Calculate the cash inflows for the months of April and May.
Cash sales revenue receipts inflows
April
May
Cash sales revenue [32%]
$15,744
$16,896
Credit card sales revenue [64% 94%]
29,599
31,764
Credit card sales revenue, previous month [6%]
1,770
1,889
Accounts receivable, previous month [4%]
1,844
1,968
Total Cash Inflows
$48,957
$52,517
E11.8 Calculate cash outflows for the months of September and October.
Cash payment outflows
September
October
Cost of sales, current [75%]
[1]
$14,216
[5]
$14,592
Cost of sales previous month [25%]
[2]
4,598
[6]
4,739
Operating expenses [98%]
[3]
24,930
[7]
25,590
Operating expenses previous month [2%]
[4]
494
[8]
509
Total cash outflows
$44,238
$45,430
[1] $18,954 × 75% = $14,216 [5] $19,456 × 75% = $14,592
[2] $18,392 × 25% = $ 4,598 [6] $18,954 × 25% = $ 4,739
[3] $25,439 × 98% = $24,930 [7] $26,112 × 98% = $25,590
[4] $24,684 × 2% = $ 494 [8] $25,439 × 2% = $ 509
E11.9 Calculate the ending cash balance of the first month of operations.
Beginning cash balance February
$ 4,448
Cash sales revenue, current [86% × $39,300]
$33,798
Cash sales revenue, previous month [14% × $38,400]
5,376
Total cash receipts
39,174
Total cash available
$43,622
Cash payments
Cost of sales, current [75% × $14,541]
$10,906
Cost of sales previous month [25% × $14,208]
3,552
Wages expense
13,362
Operating expenses
5,895
Total February cash payments
($ 33,715)
Ending February cash balance
$ 9,907
181
PROBLEM SOLUTIONS
P11.1 Prepare a cash budget for the month of December 1, 0007
Cash Budget
For December, Year 0007
Beginning cash
$ 4,800
Cash receipts, operations
Sales revenue, cash [$75,000 × 40%]
$30,000
Credit card sales revenue [$75,000 × 60% × 96%]
43,200
Previous month credit card sales revenue [$80,000 × 60% × 4%]
1,920
Total cash receipts
75,120
Total cash available, December 0007
$79,920
Cash disbursements, operations
December cost of sales [$29,000 × 20%]
$ 5,800
November cost of sales [$30,000 × 80%]
24,000
Wages expense
21,000
Operating expenses
14,000
Total cash disbursements
(64,800)
Ending cash balance
$15,120
* Rent was prepaid and noted as a cash disbursement in January 0007 for the entire year.
Depreciation is a non-cash expense and reduces the book value of related depreciable assets.
P11.2 Calculate the motel’s cash balance at December 31, 0008.
Cash collections for November and December
Year 0008
November sales revenue: $34,500
November cash sales [42%]
$ 14,490
November credit card sales [$34,500 x 58% x 92% ]
18,409
October credit card sales [$32,500 x 58% x 8%]
1,508
December sales revenue: $36,000
December cash sales [42%]
15,120
December credit card sales [$36,000 x 58% x 92%]
19,210
November credit card sales [$34,500 x 58% x 8%]
1,601
$ 70,338
January to October sales
$367,900
Total cash collected in Year 0008
$438,238
182
Cash Reconciliation
Beginning bank balance
$ 7,100
Cash receipts, operations
Cash sales revenue
438,238
Total cash available
$445,338
Cash disbursements, Operations
Operating expenses
$302,300
Management salary expense
23,000
Building rent expense
18,500
Insurance expense
2,400
Interest expense
7,600
Income tax (paid for Yr. 0007)
9,800
Total cash disbursements, operations
( 363,600)
Cash excess (deficiency)
$ 81,738
Cash disbursements, Financing
New furniture
15,600
Bank loan payment [$73,900 – $49,200]
24,700
Total cash disbursements, financing
( 40,300)
Ending Cash Balance
$ 41,438
183
P11.3 Prepare a cash budget for each of the months of October, November, and December.
The beginning cash balance on October 1 is $2,410. Collections on credit sales revenue
averages 90% in the month following credit sales, and 10% in the month following.
Average cost of sales is 38% of total sales revenue. The cost of sales is 60% paid in the
current month and 40% in paid in the following month.
Cash Budget
October
November
December
Opening cash balance
$ 2,410
$ 9,973
$ 15,547
Cash receipts, operations
Sales revenue: Cash
27,900
25,100
32,400
Credit sales revenue: Current month collections
12,600
11,700
10,800
Credit sales revenue: Previous month collections
1,600
1,400
1,300
Total cash receipts, operations
$44,510
$48,173
$60,047
Cash receipts, financing
Sale of equipment
1,500
Total cash receipts, financing
$44,510
$48,173
$61,547
Cash disbursements, operations
Cost of sales: Current month [60%]
$9,325
$8,459
$10,990
Previous month [40%]
6,612
6,217
5,639
Payroll expense
13,100
12,700
12,200
Rent expense
2,500
2,500
2,500
Utilities expense
500
450
550
Other operating expenses
1,100
900
1,300
Interest expense
400
400
400
Total Cash disbursements, operations
$33,527
$31,626
$33,579
Cash excess, (deficiency) operations
$10,973
$16,547
$27,978
Cash disbursements, financing
Equipment
$1,000
$1,000
$1,000
New equipment
5,400
Employee Bonus
_______
_______
3,600
Total cash disbursements, financing
$ 1,000
$ 1,000
$10,000
Total Cash Disbursements
$34,527
$32,626
$43,579
Ending Cash Balance
$ 9,973
$15,547
$17,968
Credit sales receivables collections: 90% following the month of sales and 10% the next month:
October: From September $14,000: collected in October $14,000 × 90% = $12,600
From October $13,000: collected in November $13,000 × 10% = $1,300
Cost of sales cash disbursement calculations:
September: $43,500 × 38% = $16,530 × 60% = $ 9,918 current month; $16,530 × 40% = $6,612 in Oct.
October: $40,900 × 38% = $15,542 × 60% = $ 9,325 current month; $15,542 × 40% = $6,217 in Nov.
184
P11.4 Prepare a budgeted income statement and a cash budget, and comment.
a. Budgeted Income Statement for the month of June, 2008
Sales revenue [30 days × $1,500]
$45,000
Cost of sales [$45,000 × 38%]
( 17,100)
Gross margin
$27,900
Operating expenses
Wages & salaries expense [$45,000 × 37%]
$16,650
Rent expense
2,000
Interest expense
300
Other operating expenses [$45,000 × 10%]
4,500
Depreciation expense
1,800
Total operating expenses
( 25,250)
Operating income
$ 2,650
b. Cash Budget for the Month of June, 2008
Beginning cash balance
$ 1,000
Cash receipts, operations
Cash sales revenue [$45,000 × 40%]
18,000
Credit card sales revenue [$45,000 x 60% x 88%]
23,760
Total cash available
$42,760
Cash disbursements, operations
Cost of sales [$45,000 × 38%]
$17,100
Wages & salaries expense [$45,000 × 37%]
16,650
Rent expense
2,000
Loan interest expense
300
Total cash disbursements, operations
(36,050)
Cash excess (deficiency)
$ 6,710
Cash disbursements, Financing
Loan repayment
( 3,000)
Ending cash balance
$ 3,710
c. The budgeted income statement shows a positive operating income of $2,650, and
the ending cash is also positive at $3,710. However, the ending cash increased to
185
P11.5 Prepare a budgeted income statement for Year 0007 and calculate cash flow.
a. Budgeted Income Statement
Rooms
Dining Room
Total
Sales revenue
$350,000
$150,000
$500,000
Wages expense
$ 87,500
$ 60,000
$147,500
Cost of sales: food
52,500
52,500
Other operating expenses
$ 17,500
$ 15,000
32,500
Total direct expenses
($105,000)
($127,500)
($232,500)
Contributory Income
$245,000
$ 22,500
$267,500
Other income (vending machines)
5,500
Subtotal
$273,000
Total indirect expenses
( 185,000)
Operating Income
$ 88,000
b. Cash Flow for Year 0007
Adjustments
Operating income
$ 88,000
Add back: depreciation
75,000
Subtotal
$163,000
New equipment (net)
$24,600
Mortgage payments
30,300
Bank loan payments
25,300
Dividends
42,000
Total estimated payments
(122,200)
Net cash flow
$ 40,800
P11.6 Prepare a cash budget for six months.
Cash Budget
April
May
June
July
August
September
Beginning balance:
$30,000
$35,000
$ 41,300
$ 45,900
$66,900
$ 79,900
Cash receipts, operations
Food sales revenue
34,000
35,600
46,000
50,000
45,000
40,800
Bar sales revenue
10,800
12,600
13,800
16,200
14,200
13,000
Cash Available
$74,800
$83,200
$101,100
$112,100
$126,100
$133,700
Cash disbursements, operations
Cost of sales purchases:
Cost of sales, Food
$12,000
$12,500
$13,600
$14,000
$14,600
$16,600
Cost of sales, Bar
4,400
4,800
5,400
6,400
6,800
8,200
Wages expense
13,000
13,800
15,000
14,800
13,400
12,200
Other expenses
10,400
10,800
11,200
11,600
11,400
10,600
Total cash disbursements
$39,800
$41,900
$45,200
$46,800
$46,200
$47,600
Cash excess (deficiency)
$41,300
$55,900
$65,300
$79,900
$86,100
Financing Activities
Equipment purchased
(10,000)
Interest income
$ 1,600
Ending Cash Balance
$35,000
$41,300
$45,900
$66,900
$79,900
$86,100
186
P11.7 Calculate beginning cash and prepare a cash budget. Prepare an income statement for
three months and a balance sheet as of March 31, 0008.
Beginning cash:
Cash from stock shares sold [40,000 × $6.00]
$240,000
Cost of building
$120,000
Cost of equipment
90,000
Cost of china, etc.
18,000
Cost of inventory
7,000
Cash disbursements
(235,000)
Beginning cash balance
$ 5,000
(1) Budgeted Income Statement
For the First Quarter Ending March 31, 0008
January
February
March
Sales revenue
$30,200
$60,800
$90,400
Cost of sales
( 11,476)
( 23,104)
(34,352)
Gross Margin
$18,724
$37,696
$56,048
Operating Expenses
Other operating expenses
$ 3,800
$ 3,800
$ 3,800
Salaries & Wages Expense:
Fixed salaries & wages expense
5,200
5,200
5,200
Variable salaries & wages expense
1,560
10,740
19,620
Depreciation Expenses:
Building
500
500
500
Furniture & Equipment
750
750
750
China, Silverware, etc.
300
300
300
Total operating expenses
12,110
21,290
30,170
Operating income
$ 6,614
$16,406
$25,878
(2) Cash Budget
January
February
March
Opening cash balance
$ 5,000
$ 11,260
$20,422
Cash sales receipts, operations
Current month sales revenue
$16,610
$33,440
$49,720
Previous month sales revenue
13,590
27,360
Total cash available
$21,610
$58,290
$97,502
Cash Disbursements
Cost of sales: Current month
$ 4,590
$ 9,242
$13,741
Cost of sales: Previous month
6,886
13,862
Salaries and Wages Expense
Fixed salaries & wages expense
5,200
5,200
5,200
Variable salaries & wages expense
1,560
10,740
19,620
Other operating expenses
3,800
3,800
Total cash disbursements
$11,350
$35,868
$56,223
Cash excess (deficiency)
$11,260
$22,422
$41,279
Financing Activities
Increased inventory
(2,000)
(2,000)
Closing cash
$ 11,260
$20,422
$39,279
187
(3) Balance Sheet, March 31, 0008
Assets
Current Assets
Cash
$ 38,279
Accounts receivable
40,680
Inventory
11,000
Total current assets
$ 89,959
Property Plant & Equipment
Building
$120,000
Less: Accumulated depreciation
( 1,500)
$118,500
Furniture & Equipment
90,000
Less: Accumulated depreciation
( 2,250)
87,750
China, Silverware, etc.
18,000
Less: Accumulated depreciation
( 900)
17,100
Net Property Plant & Equipment
$223,350
Total Assets
$313,309
Liabilities & Stockholders’ Equity
Current Liabilities
Accounts payable
$ 24,411
[($90,400 x 38% x 60%) + $3,800]
Stockholders’ Equity
Common stock
$240,000
Retained earnings [$6,614 + $16,406 + $25,878]
48,898
$288,898
Total Liabilities & Stockholders’ Equity
$313,309
P11.8 a. Budgeted Income statement
For the First Three Months
Month 1
Month 2
Month 3
Sales revenue
$48,000
$66,000
$84,000
Cost of sales
$14,400
$19,800
$25,200
Salaries & wages expense
15,000
16,200
19,800
Other expenses
4,800
6,600
8,400
Rent expense
3,000
3,000
3,000
Depreciation expenses:
Furniture & Equipment
3,000
3,000
3,000
China, glass & silverware
2,100
42,300
2,100
50,700
2,100
61,500
Net income
$ 5,700
$15,300
$22,500
Retained Earnings
$ 5,700
$21,000
$43,500
188
b. Cash Budget
For the First Three Months
Month 1
Month 2
Month 3
Beginning cash balances:
$10,800
$16,800
$ 35,400
Operating Activities
Cash sales revenue receipts
38,400
9,600
13,200
Credit card sales revenue
______
52,800
67,200
Total cash available
$49,200
$79,200
$115,800
Cash Disbursements
Cost of sales, Food
$14,400
$19,800
$25,200
Labor expenses
15,000
16,200
19,800
Other expenses
4,800
6,600
Rent expense
3,000
3,000
3,000
Total cash disbursements
$32,400
$43,800
$54,600
Cash excess (deficiency)
$16,800
$35,400
$61,200
Financing Activities
Partnership withdrawals
_______
_______
$46,200
Ending Cash Balance
$16,800
$35,400
$15,000
c. Balance Sheet (Condensed)
For the First Three Months
Cash
$ 15,000
Accounts payable
$ 8,400
Inventory
9,000
Accounts receivable
16,800
Beginning partnership
capital
225,000
Furniture & Equipment
180,000
Net income (First 3 months)
43,500
Less Accumulated Depr.
( 9,000)
Partnership withdrawals
(46,200)
China, Silverware, etc.
18,900
Ending Partnership Capital
$222,300
Totals Assets
$230,700
Total Liabilities & Capital
$230,700
189
P11.9 Determine the level of sales revenue after tax flow to achieve a cash flow of $27,000.
a. After tax cash flow is: $27,000 + $42,000 fixed costs − $21,000 depreciation. Net
Net Income [AT] $48,000 $48,000 $64,000
1 − tax rate 1 − 25% 75%
b. Confirmation of $170,000 sales revenue level will meet cash flow objective.
Sales revenue
$170,000
Variable cost [30% × $170,000]
$51,000
Fixed costs
55,000
Subtotal
(106,000)
Operating income [BT]
$ 64,000
Tax 25% [$64,000 × 25%]
( 16,000)
Net Income (after tax)
$ 48,000
Add: Depreciation
21,000
Deduct: Loan payments
( 42,000)
Cash flow
$ 27,000
190
P11.10 For each of three months, prepare an income statement, determine the beginning cash
and complete a cash budget.
Room sales revenue calculations:
Month 1: 6 rooms × $65 × 30 = $11,700
Cece Saw’s Motel
Income Statement for the First Quarter Ending March 31
Month 1
Month 2
Month 3
Occupancy rate
60%
65%
70%
Rooms sales revenue
$11,700
$12,675
$13,650
Operating Expenses
Laundry expense
$1,170
$1,268
$1,365
Advertising expense
200
200
200
Insurance expense
300
300
300
Fixed labor expense
5,000
5,000
5,000
Variable labor expense
400
400
400
Utilities expense
300
325
350
Office supplies expense
100
100
100
Interest expense
1,600
1,600
1,600
Depr: Building
556
556
556
Depr: Furniture & Equip.
200
200
200
Depr: Linen
100
100
100
Total operating expenses
$9,926
$10,049
$10,171
Operating Income
$1,774
$ 2,626
$ 3,479
Beginning Cash Calculation
Cash investment
$ 50,000
Long-term mortgage
240,000
Total Cash Available
$290,000
Cash Disbursements
Land
$ 50,000
Building
200,000
Furnishings
24,000
Linen
6,000
Prepaid advertising
2,400
Prepaid insurance
3,600
Total cash disbursements
( 286,000)
Beginning cash balance
$ 4,000
191
Cece Saw’s Motel
Cash Budget for the First Quarter Ending March 31
January
February
March
Beginning cash balances
$ 4,000
$ 9,930
$15,897
Operating Activities
Cash rooms sales revenue
$11,700
$12,675
$13,650
Cash available
$15,700
$22,065
$29,547
Cash Disbursements
Laundry expense
$ 1,170
$ 1,268
$ 1,365
Salaries expense, fixed
1,500
1,500
1,500
Wages expense, variable
400
400
400
Utilities expense
-0-
300
325
Office supplies expense
100
100
100
Interest expense
1,600
1,600
1,600
Total cash disbursements
$ 4,770
$ 5,168
$ 5,290
Cash excess (deficiency)
$10,930
$16,897
$24,257
Financing Activities
Loan principal repayment
($1,000)
($ 1,000)
( $1,000)
Closing cash
$9,930
$15,897
$23,257
192
Cece Saw’s Motel
Balance Sheet for the First Quarter Ending March 31
Assets
Current Assets
Cash
$23,797
Prepaid advertising
1,800
Prepaid insurance
2,700
Total current assets
$ 28,297
Property Plant & Equipment
Land
$ 50,000
Building
200,000
Less: Accumulated depreciation
( 1,668)
198,332
Furnishings & Equipment
24,000
Less: Accumulated depreciation
( 600)
23,400
Linen
6,000
Less: Accumulated depreciation
( 300)
5,700
Net Property Plant & Equipment
277,432
Total Assets
$305,729
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
$ 350
Wages payable
10,500
Short-term portion mortgage payable
12,000
Total current liabilities
$ 22,850
Long-Term Liabilities
Stockholders’ loan payable
$ 40,000
Mortgage payable
225,000
Total long-term liabilities
$265,000
Stockholders’ Equity
Common stock
$ 10,000
Retained earnings
7,879
Total stockholders’ equity
$ 17,879
Total Liabilities & Stockholders’ Equity
$305,729
193
CASE 11 SOLUTIONS
4C Company
Monthly Operating Budget for Months January Through June, Year 2008
Sales Revenue
January
February
March
April
May
June
Monthly sales revenue percentage
6.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Food sales [71.9%]
$31,477
$31,477
$36,723
$41,970
$47,216
$52,462
Beverage sales [28.1%]
12,276
12,295
14,323
16,369
18,415
20,461
Total monthly sales revenue
$43,753
$43,754
$51,046
$58,338
$65,631
$72,923
Cost of Sales, Food
Beginning Inventory
$ 5,915
$ 6,128
$ 6,352
$ 6,521
$ 6,785
$ 6,985
Purchases
12,646
12,657
14,675
16,842
18,850
21,062
Ending Inventory
( 6,128)
( 6,352)
( 6,521)
( 6,785)
( 6,985)
( 7,325)
Cost of Sales, Food [28.4%]
$12,433
$12,433
$14,506
$16,578
$18,650
$20,722
Cost of Sales, Beverage
Beginning Inventory
$ 2,211
$ 2,378
$2,265
$ 2,155
$ 2,855
$ 2,645
Purchases
2,843
2,563
3,012
4,268
3,804
4,410
Ending Inventory
(2,378)
(2,265)
(2,155)
(2,855)
(2,645)
(2,595)
Cost of Sales, Beverages
$ 2,676
$ 2,676
$ 3,122
$ 3,568
$ 4,014
$ 4,460
Total Monthly Cost of Sales
$15,109
$15,109
$17,628
$20,146
$22,664
$25,182
Monthly Gross Margin
$28,644
$28,644
$33,418
$38,192
$42,967
$47,741
Operating Expenses
Salaries,fixed [$35,000]
$ 2,917
$ 2,917
$ 2,917
$ 2,917
$ 2,917
$ 2,917
Wages, variable [30.3%]*
13,257
13,257
15,467
17,676
19,886
22,096
Laundry [2.6%]
1,138
1,138
1,327
1,517
1,706
1,896
Kitchen fuel: Fixed [$4,200 / 12]
350
350
350
350
350
350
Variable [0.5%]
219
219
255
292
328
365
China, tableware [1.9%]
831
831
970
1,108
1,247
1,386
Glassware [0.3%]
131
131
153
175
197
219
Contract cleaning [$6,506]
542
542
542
542
542
542
Licenses [$3,205]
267
267
267
267
267
267
Other operating [$4,375] [.006 x SR]
263
263
306
350
394
438
Administrative & General [$16,204]
1,350
1,350
1,350
1,350
1,350
1,350
Marketing [$9,917]
826
826
826
826
826
826
Utilities: Fixed [$5,100 / 12]
425
425
425
425
425
425
Variable [0.8% x SR]
350
350
408
467
525
583
Insurance expense [$2,085 / 12]
174
174
174
174
174
174
Rent expense [$26,400 / 12]
2,200
2,200
2,200
2,200
2,200
2,200
Interest expense [$19,500 /12]
1,625
1,625
1,625
1,625
1,625
1,625
Depreciation expense [$20,124 / 12]
1,677
1,677
1,677
1,677
1,677
1,677
Total Operating Expenses
$28,542
$28,542
$31,239
$33,939
$36,636
$39,336
Operating income
$ 102
$ 102
$ 2,137
$ 4,207
$ 6,382
$ 8,482
Income tax [22%]
( 22)
( 22)
( 470)
( 934)
( 1,404)
( 1,832)
Net Income
$ 80
$ 80
$ 1,667
$ 3,373
$ 4,978
$ 6,650
*Variable salaries & wages costs: $255,799 – $35,000 / $729,228 = $220, 779 / $729,228 = 30.3%
194
4C Company
Monthly Cash Budget for Months January Through June, Year 2008
January
February
March
April
May
June
Beginning Cash Balance
$36,218
$24,233
$21,089
$20,751
$15,469
$18,936
Cash Receipts
Cash sales revenue
26,252
26,252
30,628
35,003
39,379
43,754
Cash credit cards receivable
14,176
14,176
16,539
18,902
21,264
23,627
Previous credit cards receivable
3,421
1,575
1,575
1,838
2,100
2,363
Accounts receivable
1,750
1,750
1,750
2,042
2,334
2,625
Total Cash Available
$81,817
$67,986
$71,581
$78,536
$80,546
$91,305
Cash Disbursements
Cash food purchases
$6,955
$6,961
$8,071
$9,263
$10,368
$11,584
Accounts payable, food
8,819
5,691
5,696
6,604
7,579
8,483
Cash beverage purchases
1,564
1,410
1,657
2,347
2,092
2,426
Accounts payable, beverage
-0-
1,279
1,153
1,355
1,921
1,712
Fixed wages
2,215
2,917
2,917
2,917
2,917
2,917
Payroll
13,257
13,257
15,467
17,677
19,886
22,096
Laundry
1,138
1,138
1,327
1,517
1,706
1,896
Kitchen fuel: Fixed
350
350
350
350
350
350
Kitchen fuel: Variable
219
219
255
292
328
365
China, tableware
831
831
970
1,108
1,247
1,386
Glassware
131
131
153
175
197
219
Contract cleaning
542
542
542
542
542
542
Licenses
3,205
267
267
267
267
267
Other operation
263
263
306
350
394
438
Accrued expenses: Admin
-0-
1,350
1,350
1,350
1,350
1,350
Accrued expenses: Marketing
-0-
826
826
826
826
826
Utilities: Fixed
425
425
425
425
425
425
Utilities: Variable
350
350
408
467
525
583
Insurance
2,085
-0-
-0-
-0-
-0-
-0-
Rent
2,200
2,200
2,200
2,200
2,200
2,200
Interest
1,625
1,625
1,625
1,625
1,625
1,625
Depreciation
1,677
1,677
1,677
1,677
1,677
1,677
Income tax payable
6,545
-0-
-0-
6,545
-0-
-0-
Total Cash Disbursements
54,396
43,709
47,642
59,879
58,422
63,367
Cash Excess
$27,421
$24,277
$23,939
$18,657
$22,124
$27,938
Loan repayment (Financing)
3,188
3,188
3,188
3,188
3,188
3,188
Ending Cash Balance
$24,233
$21,089
$20,751
$15,469
$18,936
$24,750