Question

In: Accounting

Radcliff Ltd. has budgeted the following sales for the next three months: January February March Budgeted...

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

  1. Compute the budgeted cash receipts for March.
  2. Prepare a cash budget in good form for the month of March. The company can borrow in any dollar amount and will not pay interest until April.
  3. Why is it important for a company to create monthly cash budgets?

Solutions

Expert Solution

(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.


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