Question

Hook's Boat Supplies Limited has planned the following sales and inventory purchases for the next three months: July August September Budgeted sales un 75,000 $ 60,000 S 80,000 Inventory purchases $ 35,000 $ 28,000 $ 40,000 Sales are made 20% for cash & 80% on account. From experience the company has learned that a month's sales on account are collected according to the following: Month of sale First month following sale Second month following sale Uncollectible 60% 30% 596 5% I The company requires a minimum cash balance of $5,000 at the end of each month The beginning cash balance is budgeted to be $10,000 on September 1, 2020, The company purchases all inventory on account and 50% are paid for in the month of purchases; the remainder are paid in the following month. Additional information for September, 2020: Operating expenses (all paid in September) Depreciation expense included in above operating expenses Dividends paid in September Fquipment to be purchased in September 36,000 6,000 8,000 25,000 The company has an agreement with the local bank that allows the company to borrow up to $40,000. The budgeted balance of loans at August 31 is $0. All borrowing is done at the beginning of the month and the interest rate on the loan is 8% per year, Required: Prepare a cash budget for the month of September 2020 only.

Answer 1

Cash Budget for September 2020:
	Amount in $
Opening Balance	10,000	Given
Add: Collection
Cash sales of September	16,000	(80,000 x 20% )
Collection of september credit sales in September	38,400	(80,000 x 80% x 60% )
Collection of august credit sales in September	14,400	(60,000 x 80% x 30% )
Collection of july credit sales in september	3,000	(75,000 x 80% x 5% )
Total Cash Available	81,800
Less: Payments
Payment of Inventory Purchase of August	14,000	(28,000 x 50% )
Payment of Inventory Purchase of September	20,000	(40,000 x 50% )
Payment of operating expenses excluding depreciation	30,000	(36,000 - 6,000 )
Paymnent of Equipment Purchase	25,000	Given
Payment of Cash Dividends	8,000	Given
Total Payments	83,000
Excess(deficiency) of cash availabe over disbursements	-1,200
Financing:
Borrrowings	6,200
Repayments	-
Interest	-
Total Financing	6,200
Ending Cash Balance	5,000

* Interest payment has been ignored as question is silent on timing of interest payment.