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In: Accounting

Graham Potato Company has projected sales of $14,400 in September, $17,000 in October, $24,400 in November,...

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.

Graham Potato Company
Cash Receipts Schedule
September October November December
Sales
Credit sales
Cash sales
One month after sale
Two months after sale
Total cash receipts $0 $0

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.)

Graham Potato Company
Cash Budget
November December
Total cash receipts
Total cash payments
Net cash flow $0 $0
Beginning cash balance
Cumulative cash balance $0 $0
Monthly borrowing (repayment)
Ending cash balance $0 $0
Cumulative loan balance

Solutions

Expert Solution

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

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