Question

During the last week of August, Oneida Company’s owner approaches the bank for an $104,500 loan to be made on September 2 and repaid on November 30 with annual interest of 16%, for an interest cost of $4,180. The owner plans to increase the store’s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a $4,000 cash balance, $115,200 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.

Budgeted Figures*	September		October		November
Sales	$	250,000	$	415,000	$	470,000
Merchandise purchases		230,000		215,000		197,000
Cash disbursements
Payroll		20,200		21,950		24,200
Rent		10,000		10,000		10,000
Other cash expenses		34,500		29,800		21,350
Repayment of bank loan						104,500
Interest on the bank loan						4,180

*Operations began in August; August sales were $160,000 and purchases were $105,000.

The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 28% of credit sales is collected in the month of the sale, 43% in the month following the sale, 23% in the second month, 5% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $68,800 of the $160,000 will be collected in September, $36,800 in October, and $8,000 in November. All merchandise is purchased on credit; 30% of the balance is paid in the month following a purchase, and the remaining 70% is paid in the second month. For example, of the $105,000 August purchases, $31,500 will be paid in September and $73,500 in October.

Required:

Prepare a cash budget for September, October and November for Oneida Company. Show supporting calculations as needed.

Answer 1

Oneida Company
Cash Budget
For September, October, November
	September	October	November
Beginning Cash Balance	4,000	151,100	207,350
Cash Receipts from Customers	138,800	260,500	375,550
Add: Proposed Loan	104,500	0	0
Total Cash Available	247,300	411,600	582,900
Less: Cash Disbursements for
Merchandise Purchases	31,500	142,500	225,500
Payroll	20,200	21,950	24,200
Rent	10,000	10,000	10,000
Other Cash Expenses	34,500	29,800	21,350
Repayment of Bank Loan	0	0	104,500
Interest on Bank Loan	0	0	4,180
Total Cash Disbursements	96,200	204,250	389,730
Ending Cash Balance	$ 151,100	207,350	193,170

Schedule of Cash Collections from Customers:

	September	October	November
Collection of Sales of
August	68,800	36,800	8,000
September	70,000	107,500	57,500
October	0	116,200	178,450
November	0	0	131,600
Totals	138,800	260,500	375,550

Schedule of Cash Disbursements for Merchandise Purchases:

	September	October	November
Disbursements for purchases of
August	31,500	73,500	0
September	0	69,000	161,000
October	0	0	64,500
Totals	31,500	142,500	225,500