Question

Your company has projected the following numbers for the third quarter of the year:

Month	Sales	Labor & Raw Materials Purchases
May	$ 70,000	$75,000
June	$ 90,000	$90,000
July	$130,000	$95,000
August	$120,000	$70,000
September	$100,000	$60,000

Collections occur as follows: 15% pay within the month of sale, 65% pay during the month following the sale, and 20% pay in the second month following the sale. Payments for labor and raw materials occur in the month following the purchase. Salaries and general expense run $15,000 per month, lease payments are $5,000 per month, depreciation charges are $7,500 per month, miscellaneous expense are $2,000 per month. An income tax payment of $25,000 is due in September. Cash on hand on July 1 is $25,000 and the company must maintain a minimum balance of $25,000. Prepare a cash budget for the third quarter of July, August, and September.

Answer 1

Cash Budget for 3rd quarter of the year

	July	August	September
Beginning cash balance	$25,000	($20,000)	($41,500)
Source of Cash
Sales	$92,000	$120,500	$119,000
TOTAL RECEIPT(R)	$117,000	$100,500	($77,500)
Uses of cash
Labour and Raw material	$90,000	$95,000	$70,000
Salaries and general expense	$15,000	$15,000	$15,000
Lease	$5,000	$5,000	$5,000
Miscellaneous expenses	$2,000	$2,000	$2,000
Income tax	-	-	$25,000
TOTAL EXPENSES(E)	$112,000	$117,000	$117,000
BALANCE[R-E]	$5000	($16,500)	($39,500)
MINIMUM REQUIREMENT	$25000	$25,000	$25,000
CLOSING BALANCE	($20,000)	($41,500)	($64,500)

Working note:1. SALES collection

	MAY	JUNE	JULY	AUGUST	SEPTEMBER
May($70,000)	15%	65%	20%×$70,000=$14,000
June ($90,000)		15%	65%×$90,000=$58,500	20%×$90,000=$18,000
July($130,000)			15%×$130,000=$19,500	65%×$130,000=$84,500	20%×$130,000=$26,000
August($120,000)				15%×$120,000=$18,000	65%×$120,000=$78,000
September ($100,000)					15%×$100,000=$15,000
			$92,000	$120,500	$119,000

2. Depreciation is not included because it is a non cash expenses.