Question

Jana Restaurant Supply sells various equipment and supplies to restaurants in the local and surrounding communities. The company’s executive, Mr. Hasan, has requested your help in preparing a cash budget for the month of June. Mr. Hassan accumulated the following information for you.

1. The cash balance at May 1 was estimated to be RM20,000.

2. Actual sales of April and May and budgeted sales for June are as follows:

April (RM) May (RM) June (RM)
Cash sales 33,000 31,000 35,000
Credit sales 60,000 80,000 100,000
Total sales 93,000 111,000 135,000


3. Credit sales are collected over a two-month period. With 60% being collected in the first month and the remainder being collected in the second month.

4. Inventory purchased are expected to be RM70,000 in June. The company pays for inventory purchased in the month of following purchased. The total purchases for April and May are RM52,000 and RM86,000 respectively.

5. Selling and administrative expenses are budgeted to be RM28,000 every month. Of that amount, 20% is depreciation.

6. Equipment costing RM30,000 will be purchased in June for cash.

7. Dividends in the amount of RM37,000 will be paid in the month of June.

8. The company wants to maintain a minimum cash balance of RM40,000 and has set up a line of credit at the local bank that can be used to cover any shortage. If the company must borrow, the loan will be made at the beginning of the month and any repayment will be made on the following month.

Required:
a) Prepare Cash Budget for the month of May & June. (You are required to prepare Cash Collections Schedule and Cash Payments Schedule).                                  

Answer 1

Schedule showing expected cash collections for May and June:

Item	April (RM)	May (RM)	June (RM)
a. Cash sales	33,000	31,000	35,000
b. Credit sales	60,000	80,000	100,000
c. Collections from customers:
April sales		36,000 (60,000 x 60%)	24,000 (60,000 x 40%)
May sales			48,000 (80,000 x 60%)
sub-total (c)		36,000	72,000
d. Total collections from customers (a + c)		67,000	107,000

Schedule showing expected cash payments:

Item	April (RM)	May (RM)	June (RM)
a. Total purchase of inventory	52,000	86,000	70,000
b. Payment for purchases		52,000	86,000
c. Selling and administrative expense (28,000 x 80%) excl. depreciation		22,400	22,400
d. Purchase of equipment			30,000
e. Payment of dividend			37,000
f. Total payments (b+c+d+e)		74,400	175,400

Statement showing the cash budget for the month of May and June:

Item	May (RM)	June (RM)
a. Opening cash balance	20,000	40,000
b. Cash collections from customers	67,000	107,000
c. Total cash available (a + b)	87,000	147,000
d. Total cash disbursements	74,400	175,400
e. Ending cash balance (c - d)	12,600	-28,400
f. Target Cash balance	40,000	40,000
g. Loan required (repaid) (f - e)	27,400	68,400
h. Loan balance at the end of the Month	27,400	95,800 (27,400+68,400)

NOTE: Depreciation is exluded from Selling and administrative expense since it will not form part of the cash expense.