Question

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)

Answer 1

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