The LBJ Company has budgeted sales revenues as follows.

April May June

Credit sales $94000 $89500 $75000

Cash sales 48000 75000 57000

Total sales $142000 $164500 $132000

Past experience indicates that 30% of the credit sales will be collected in the month of sale and the remaining 70% will be collected in the
following month.

Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory
purchases are $195000 in April $135000 in May and $63000 in June.

Other budgeted cash receipts: (a) sale of plant assets for $33000 in May and (b) sale of new common stock for $50000 in June. Other
budgeted cash disbursements: (a) operating expenses of $15000 each month (b) selling and administrative expenses of $10150 each month (c) purchase of
equipment for $35000 cash in May and (d) dividends of $20000 will be paid in June.

The company has a cash balance of $20000 at the beginning of May and wishes to maintain a minimum cash balance of $20000 at the end of each
month. An open line of credit is available at the bank and carries an annual interest rate of 10%. Assume that all borrowing is done on the first day of the
month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is
no outstanding financing as of May 1.

1. Use this information to prepare a cash budget for the months of May and June using the template provided in Doc Sharing.

2. What are the three sections of a cash budget and what is included in each section?

3. Why is a cash budget so vital to a company?

4. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate
cash?