Question

Problem 8-21 Schedules of Expected Cash Collections and Disbursements [LO8-2, LO8-4, LO8-8]

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $41,200.

Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	75,400	$	82,400	$	97,200
Sales on account	$	490,000	$	544,000	$	629,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

Purchases of inventory will total $366,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $183,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $472,000 for December. Of this amount, $60,000 is for depreciation.

A new web server for the Marketing Department costing $96,000 will be purchased for cash during December, and dividends totaling $11,500 will be paid during the month.

The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

	Total cash collections Total cash disbursements

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance

Answer 1

SOLUTION

1. Schedule of expected cash collection-

Particulars	Amount ($)
December cash sales	97,200
Collections on account-
October sales (490,000*18%)	88,200
November sales (544,000*60%)	326,400
December sales (629,000*20%)	125,800
Total cash collections	637,600

2. Schedule of expected cash disbursements-

Particulars	Amount ($)
Payment to suppliers-
November purchases (accounts payable)	183,000
December purchases (366,000*30%)	109,800
Total cash payments	292,800

3. Cash Budget

Particulars	Amount ($)	Amount ($)
Beginning cash balance		41,200
Add collections from customers		637,600
Total cash available (A)		678,800
Less cash disbursements:
Payments to suppliers for inventory	292,800
Selling and administrative expenses (472,000-60,000)	412,000
New web server	96,000
Dividends paid	11,500
Total cash disbursements (B)		812,300
Excess (deficiency) of cash available over disbursements (A-B)		(133,500)
Financing:
Borrowings		153,500
Repayments
Interest
Total financing		153,500
Ending cash balance		20,000