Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 43

Cash Budgeting: Not-for-Profit Context (contributed by Helen M. Savage) Tri-county Social Service Agency is a not-for-profit organization in the Midwest. Use the following information to complete the cash budget for the year ending December 31, 2010.

• The Board of Trustees requires that Tri-county maintain a minimum cash balance of $8,000.

• If cash is short, the agency may borrow from an endowment fund enough to maintain the $8,000 minimum. Repayment must be made as soon as possible. No interest is charged.

• It is anticipated that the year 2010 will begin with an $11,000 cash balance.

• Contract revenue is received evenly during the year.

• Mental health income is expected to grow by $5,000 in the second and third quarters, but not change in the fourth quarter.

Required

1. Within the context of a not-for-profit organization, what is an endowment fund?

---

2. Complete the cash budget for 2010, for each quarter and the year as a whole, using the template that follows.

---

3. Determine the amount that the agency will owe the endowment fund at year end.

---

4. Does the borrowing indicate a problem? What options would the agency have to increase revenues?

---

5. Do you think that a requirement to pay interest on the borrowings would have a positive impact on the agency’s activities? Why or why not?

Cash Budget for Tri-county Social Service Agency 2010 (in thousands)
	Quarters
	I	II	III	IV	Year
Cash balance, beginning	$ 11	?	?	?	$ 11
Receipts:
Grants	$ 80	$ 70	?	?	$ 300
Contracts	?	?	?	?	$ 80
Mental health income	$ 20	?	?	?	$ 105
Charitable donations	$250	?	$200	$400	?
Total cash available	?	$473	$333	?	?
Less disbursements:
Sa la ries and benefits	?	$342	?	?	$1,365
Office expenses	$ 70	?	$ 71	$ 50	$ 256
Equipment purchases&maintenance	$ 2	$ 4	$ 6	?	$ 17
Specific assista nce	$ 20	$ 15	$ 18	?	$ 73
Total disbursements	?	?	?	?	?
Excess (defic.) of cash available over
disbursements	$ (46)	?	?	$112	?
Financing:
Borrowings from endowment fund	?	?	$112	?	?
Repayments	?	$ (39)	?	?	?
Total financing effects	?	?	?	?	?
Cash balance, ending	?	?	?	?	?

Step 1 of 4

2.

Cash Budget for Tri Country Social Service Agency