# Cash Budgeting – Helen Bowers, owner of Helen’s Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2006 and 2007:

May 2006 \$180,000
June

## 2006 \$200,000

July 2006 \$220,000

August 2006 \$230,000
September 2006 \$210,000

October 2006 \$190,000
November 2006 \$180,000

December 2006 \$220,000
January 2007 \$240,000

February 2007 \$260,000
March 2007 \$280,000

April 2007 \$300,000

Helen has also gathered the following collection estimates regarding the forecast sales:

Collection month / Amount collected following month
May 2006 / \$90,000
June 2006 / \$70,000

July 2006 / \$50,000
August 2006 / \$40,000

September 2006 / \$30,000
October 2006 / \$50,000

November 2006 / \$70,000
December 2006 / \$90,000

January 2007 / \$100,000
February 2007 / \$80,000

March 2007 / \$60,000
April 2007 / \$40,000

Helen’s merchandise purchases are typically 60% of the next month’s sales. Forty percent of the merchandise purchases are paid in the month of purchase, and the remaining 60% is paid in the subsequent month.

May 2006 / \$90,000
June 2006 / \$70,000

July 2006 / \$60,000
August 2006 / \$70,000

September 2006 / \$80,000
October 2006 / \$90,000

November 2006 / \$100,000
December 2006 / \$110,000

January 2007 / \$120,000
February 2007 / \$130,000

March 2007 / \$140,000
April 2007 / \$120,000

The monthly rent is \$5,000, and the monthly payroll expense is \$18,000. Helen’s desires to maintain a minimum cash balance of \$10,000.

Based on the provided information, we can create a step-by-step cash budget for Helen's Fashion Designs. Here are the steps to create the cash budget:

Step 1: Calculate the expected cash inflows for each month.
- May 2006: \$90,000 (collected from May 2006 sales)
- June 2006: \$70,000 (collected from June 2006 sales)
- July 2006: \$50,000 (collected from July 2006 sales)
- August 2006: \$40,000 (collected from August 2006 sales)
- September 2006: \$30,000 (collected from September 2006 sales)
- October 2006: \$50,000 (collected from October 2006 sales)
- November 2006: \$70,000 (collected from November 2006 sales)
- December 2006: \$90,000 (collected from December 2006 sales)
- January 2007: \$100,000 (collected from January 2007 sales)
- February 2007: \$80,000 (collected from February 2007 sales)
- March 2007: \$60,000 (collected from March 2007 sales)
- April 2007: \$40,000 (collected from April 2007 sales)

Step 2: Calculate the expected cash outflows for each month.
- May 2006: \$90,000 (merchandise purchases for May 2006 sales)
- June 2006: \$70,000 (merchandise purchases for June 2006 sales)
- July 2006: \$60,000 (merchandise purchases for July 2006 sales)
- August 2006: \$70,000 (merchandise purchases for August 2006 sales)
- September 2006: \$80,000 (merchandise purchases for September 2006 sales)
- October 2006: \$90,000 (merchandise purchases for October 2006 sales)
- November 2006: \$100,000 (merchandise purchases for November 2006 sales)
- December 2006: \$110,000 (merchandise purchases for December 2006 sales)
- January 2007: \$120,000 (merchandise purchases for January 2007 sales)
- February 2007: \$130,000 (merchandise purchases for February 2007 sales)
- March 2007: \$140,000 (merchandise purchases for March 2007 sales)
- April 2007: \$120,000 (merchandise purchases for April 2007 sales)
- May 2006: \$5,000 (monthly rent)
- June 2006: \$18,000 (monthly payroll expense)
- July 2006: \$18,000 (monthly payroll expense)
- August 2006: \$18,000 (monthly payroll expense)
- September 2006: \$18,000 (monthly payroll expense)
- October 2006: \$18,000 (monthly payroll expense)
- November 2006: \$18,000 (monthly payroll expense)
- December 2006: \$18,000 (monthly payroll expense)
- January 2007: \$18,000 (monthly payroll expense)
- February 2007: \$18,000 (monthly payroll expense)
- March 2007: \$18,000 (monthly payroll expense)
- April 2007: \$18,000 (monthly payroll expense)

Step 3: Calculate the net cash flow for each month.
- Net Cash Flow = Cash Inflows - Cash Outflows

Step 4: Calculate the ending cash balance for each month.
- Ending Cash Balance = Beginning Cash Balance + Net Cash Flow

Step 5: Determine if the ending cash balance meets the minimum cash balance requirement of \$10,000. If the ending cash balance falls below \$10,000, Helen may need to request a line of credit from her bank to cover the shortfall.

By following these steps, you can create a step-by-step cash budget for Helen's Fashion Designs and analyze the cash flow for each month.

## To project the cash budget for Helen's Fashion Designs, we need to consider the estimated sales forecasts for May 2006 and June 2006, as provided. A cash budget helps in managing and forecasting the company's cash inflows and outflows over a specific period.

To begin, we will consider the sales forecast for May 2006, which is \$180,000. This represents the expected cash inflow from sales for the month of May. Next, we need to consider the cash collections from sales.

To estimate the cash collections, we need to analyze the company's sales collection pattern. It is common for companies to have a delay between making sales and receiving the cash from those sales. This delay is known as the collection period.

Let's assume that Helen's Fashion Designs has a collection period of one month. This means that the cash collected from May sales will be received in June. Therefore, the estimated cash collections for June will be \$180,000.

Now, we can move on to calculating the total cash inflows for June. As per the provided information, the estimated sales forecast for June is not given, so we do not have any additional cash inflows in June.

To determine the total cash inflow for June, we simply add the estimated cash collections (\$180,000) from May to any additional cash collections from sales in June (which is not provided).

Therefore, the projected total cash inflow for June will be \$180,000.

Note: This is a simplified example of a cash budget, and in reality, there would be additional factors to consider such as cash outflows for expenses, accounts receivable, and inventory management.