In: Accounting
Graham Potato Company has projected sales of $14,400 in
September, $17,000 in October, $24,400 in November, and $20,400 in
December. Of the company's sales, 25 percent are paid for by cash
and 75 percent are sold on credit. Experience shows that 40 percent
of accounts receivable are paid in the month after the sale, while
the remaining 60 percent are paid two months after. Determine
collections for November and December.
Also assume Graham’s cash payments for November and December are
$20,500 and $13,000, respectively. The beginning cash balance in
November is $5,000, which is the desired minimum balance.
a. Prepare a cash receipts schedule for November and December.
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b. Prepare a cash budget with borrowing needed or repayments for November and December. (Negative amounts should be indicated by a minus sign. Assume the November beginning loan balance is $0.)
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Solution a:
Graham Potato Company | ||||
Cash Receipts Schedule | ||||
Particulars | September | October | November | December |
Sales | $14,400.00 | $17,000.00 | $24,400.00 | $20,400.00 |
Credit sales | $10,800.00 | $12,750.00 | $18,300.00 | $15,300.00 |
Cash sales | $3,600.00 | $4,250.00 | $6,100.00 | $5,100.00 |
One month after sale | $4,320.00 | $5,100.00 | $7,320.00 | |
Two months after sale | $6,480.00 | $7,650.00 | ||
Total cash receipts | $17,680.00 | $20,070.00 |
Solution b:
Graham Potato Company | ||
Cash Budget | ||
Particulars | November | December |
Total cash receipts | $17,680.00 | $20,070.00 |
Total cash payments | $20,500.00 | $13,000.00 |
Net cash flow | -$2,820.00 | $7,070.00 |
Beginning cash balance | $5,000.00 | $5,000.00 |
Cumulative cash balance | $2,180.00 | $12,070.00 |
Monthly borrowing (repayment) | $2,820.00 | -$2,820.00 |
Ending cash balance | $5,000.00 | $9,250.00 |
Cumulative loan balance | $2,820.00 | $0.00 |