Question

Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the process of assembling a cash budget for the first quarter of 20x1. The following information has been extracted from the company’s accounting records:

• All sales are on account. Sixty percent of customer accounts are collected in the month of sale; 30 percent are collected in the following month. Uncollectibles amounting to 10 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 20x0, will be recovered and that the recovery will be in January 20x1.
• Sixty percent of the merchandise purchases are paid for in the month of purchase; the remaining 40 percent are paid for in the month after acquisition.
• The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $65,000; accounts receivable, $230,000; and accounts payable, $79,000.
• Mary and Kay, Inc., maintains a $65,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 9 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time.
• Additional data:

	January			February			March
Sales revenue	$	580,000		$	670,000		$	685,000
Merchandise purchases		400,000			430,000			550,000
Cash operating costs		106,000			85,000			148,000
Proceeds from sale of equipment		—			—			28,000

Required:
1. Prepare a schedule that discloses the firm’s total cash collections for January through March.
2. Prepare a schedule that discloses the firm’s total cash disbursements for January through March.
3. Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

Prepare a schedule that discloses the firm’s total cash collections for January through March.

	January February March Collection of accounts receivable Collection of January sales Collection of February sales Collection of March sales Sale of equipment Total cash collections $0 $0 $0

Prepare a schedule that discloses the firm’s total cash disbursements for January through March.

	January February March Payment of accounts payable Payment of January purchases Payment of February purchases Payment of March purchases Cash operating costs Total cash disbursements $0 $0 $0

Prepare a schedule that summarizes the firm’s financing cash flows for January through March.

	January February March Beginning cash balance Total receipts Subtotal $0 $0 $0 Less: Total disbursements Cash excess (deficiency) before financing $0 $0 $0 Financing: Borrowing to maintain $65,000 balance Loan principal repaid Loan interest paid Ending cash balance $0 $0 $0

Answer 1

1.

Cash Collections Schedule
	January	February	March
Collection of accounts receivable	$          46,000
Collection of January sales	$       348,000	$       174,000
Collection of February sales		$       402,000	$       201,000
Collection of March sales			$       411,000
Sale of equipment			$         28,000
Total cash collections	$       394,000	$       576,000	$       640,000

2.

Cash Disbursements schedule
	January	February	March
Payment of accounts payable	$          79,000
Payment of January purchases	$       240,000	$       160,000
Payment of February purchases		$       258,000	$       172,000
Payment of March purchases			$       330,000
Cash operating costs	$       106,000	$         85,000	$       148,000
Total cash disbursements	$       425,000	$       503,000	$       650,000

3.

Cash Budget
	January	February	March
Beginning cash balance	$          65,000	$         65,000	$       106,535
Total receipts	$       394,000	$       576,000	$       640,000
Subtotal	$       459,000	$       641,000	$       746,535
Less: Total disbursements	$       425,000	$       503,000	$       650,000
Cash excess (deficiency) before financing	$          34,000	$       138,000	$         96,535
Financing:
Borrowing to maintain $65,000 balance	$          31,000
Loan principal repaid		$ (31,000)
Loan interest paid		$ (465)
Ending cash balance	$         65,000	$       106,535	$         96,535