In: Accounting
On January 1, Easton Company had cash on hand of $100,000. All of January's $208,000 sales were on account. December sales of $206,000 were also all on account. Experience has shown that Easton typically collects 30% of receivables in the month of the sale and the balance the following month. All materials and supplies are purchased on account and Easton has a history of paying for half of these purchases in the month of purchase and half the following month. Such purchases were $150,000 for December and $175,000 for January. All other expenses including wages are paid in the month incurred. These amounted to $42,000 in December and $68,000 in January. Use this information to determine the projected ending balance of cash on hand for January. (Round answer to the nearest whole dollar)
Calculation of projected ending balance of cash in hand | |
Particulars | Amount |
Opening balance in january -1 | $ 100000 |
ADD RECEIPTS | |
Add:Collection from december month sales(206000 x 70%) | $144200 |
Add:Collection from january sales(208000 x 30%) | $ 62400 |
Total | $306600 |
REDUCE PAYMENTS | |
Less:Payment for december month purchase (150000 x50%) | $75000 |
Less:Payment for january month purchase (175000 x 50%) | $87500 |
Less:All other expenses and wages | $68000 |
Cash in hand ending balance | $76100 |
NOTES |
1 .All sales amounts are collected 30% in the month of sale and balance 70% in next month, |
Hence the amount of collection in january month will be 70% of 206000,the balance 30% already have collected in the month of sale,that is the december.therefore it need not take into calculation |
And the january month collection will be 30% of 208000,balance 70% will be collected in february |
2 . Payment for the purchases are paid as 50% in the month of purchase and balance in next month,therefor the unpaid balance of 150000 x 50% will be paid in january.And for the purchases made in january,only 50% amount will be paid in janaury itself,balance will be paid february. |
3 .The other expenses and wages are paid in the month itself,hence december month payment already have paid in december itself,and january month expense only need to consider for reduction |