In: Accounting
Radcliff Ltd. has budgeted the following sales for the next three months:
January |
February |
March |
|
Budgeted Sales |
$80,000 |
$100,000 |
$140,000 |
Ninety percent of sales are on account and ten percent of sales are
cash sales. A month's sales on account are collected as
follows:
Month of sale |
50% |
First month following sale |
40% |
Second month following sale |
9% |
Uncollectible |
1% |
The company requires a minimum cash balance of $7,000 to start a
month. The beginning cash balance in March is budgeted to be
$8,000.
The following additional information has been provided for the company:
February Inventory purchases (75% paid in February, the remainder paid in March) |
$55,000 |
March Inventory purchases (75% paid in March, the remainder to be paid in April) |
$43,000 |
Operating expenses (all paid in March) |
35,000 |
Depreciation expense for March |
15,000 |
Dividends paid in March |
7,500 |
(c)Cash Budget presents the summary statement of expected receipts(inflows) and payment (outflows) of cash for a period of time.It helps the management in determining the future cash needs of the firm ; planning for financing of those needs and exercising control over cash and liquidity of the firm.