Energy Power, a family owned battery store, began October with $10,000 cash. Management forecasts that collections from credit customers will be $11,400 in October and $14,800 in November. The store is scheduled to receive $4,500 cash on a business note receivable in October. Projected cash payments include inventory purchases ($9,700 in October and $13,200 in November) and operating expenses ($4,200 each month).
Energy Power’s bank requires a $11,000 minimum balance in the store’s chequing account. At the end of any month when the account balance dips below $11,000, the bank automatically extends credit to the store in multiples of $2,000. Energy Power borrows as little as possible and pays back loans in quarterly installments of $4,000, plus 6% interest on the entire unpaid principal. The first payment occurs three months after the loan.
Requirement
Prepare Energy Power’s cash budget for October and November.