Question

The Fortunate Co. is preparing a cash budget for the 2nd quarter. The following information is available:

Projected cash sales:   $10,000 each month

Projected credit sales: $ 8,000 each month

One half of the credit sales are collected in the month of sale, and the remainder collected in the following month (there are no uncollectible accounts).

Accounts receivable on April 1^st were $3,000.

Operating expenses (paid in cash): $20,000 for April, and $13,000 for each of the following two months.

Cash balance-4/1: $7,000

The company must maintain a minimum cash balance at the end of each month of   $5,000.

Any deficiency must be borrowed, and repaid (with no interest) the following month.

Complete the following cash budget for Fortunate (22 points).

	April	May	June
Beg. Balance
Cash Sales
Credit Sales
Cash Expenses
Balance before borrowing
Borrow/Repay
End. Balance

Answer 1

	April	May	June
Beg. Balance	7,000	5,000	9,000
Cash sales	10,000	10,000	10,000
Credit sales	7,000	8,000	8,000
Cash expenses	(20,000)	(13,000)	(13,000)
Balance before borrowing	4,000	10,000	14,000
Borrow / Repay	1,000	-1,000	0
End. Balance	5,000	9,000	14,000

Point to see -

Cash collection from credit sales (April) = Opening accounts receivable + (Credit sales made in the month of April * 0.5)

                                                             = $3,000 + ($8,000 * 0.5)

                                                             = $7,000

Cash collection from credit sales (May) = (Credit sales made in the month of April * 0.5) + (Credit sales made in the month of May * 0.5)

                                                              = ($8,000 * 0.5) + ($8,000 * 0.5)

                                                              = $8,000

Similarly, cash collection from credit sales (in June) is equal to $8,000.