Donovan Medical Supply began October with $11,200 cash.
Management forecasts that collections from credit customers will be $12,000 in October and $14,800 in November. The business is scheduled to receive $5,000 cash on a business note receivable in October. Projected cash payments include inventory purchases ($13,200 in October and $12,400 in November) and operating expenses ($4,000 each month).
Donovan's bank requires a $10,000 minimum balance in the business's checking account. At the end of any month when the account balance dips below the minimum balance, the bank automatically extends credit to the business in multiples of $1,000. Donovan's borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 2% interest on the entire unpaid principal. The first payment occurs three months after the loan.
Requirement
Prepare Donovan Medical Supply's cash budget for October and November.