Question

During the last week of August, Oneida Company’s owner approaches the bank for a $101,500 loan to be made on September 2 and repaid on November 30 with annual interest of 15%, for an interest cost of $3,806. 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, $114,000 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	$	395,000	$	490,000
Merchandise purchases		240,000		200,000		194,000
Cash payments
Payroll		20,400		21,950		23,700
Rent		9,000		9,000		9,000
Other cash expenses		33,700		30,800		20,500
Repayment of bank loan						101,500
Interest on the bank loan						3,806

*Operations began in August; August sales were $150,000 and purchases were $105,000.

The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 24% of credit sales is collected in the month of the sale, 44% in the month following the sale, 21% in the second month, 8% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $66,000 of the $150,000 will be collected in September, $31,500 in October, and $12,000 in November. All merchandise is purchased on credit; 60% of the balance is paid in the month following a purchase, and the remaining 40% is paid in the second month. For example, of the $105,000 August purchases, $63,000 will be paid in September and $42,000 in October.

Required:
Prepare a cash budget for September, October, and November. (Round your final answers to the nearest whole dollar.)

Answer 1

				Amount $
		September	October	November
	Opening Cash balance	4,000	105,400	93,950
	Add: Collection
	Collection of August sales	66,000	31,500	12,000
	Collection of September sales	60,000	110,000	52,500
	Collection of October sales	-	94,800	173,800
	Collection of November sales	-	-	117,600
	Total Cash Available	130,000	341,700	449,850
	Cash payments
	Payment Merchandise purchases of August ( 105,000 )	63,000	42,000
	Payment Merchandise purchases of September	-	144,000	96,000
	Payment Merchandise purchases of October	-	-	120,000
	Payroll	20,400	21,950	23,700
	Rent	9,000	9,000	9,000
	Other cash expenses	33,700	30,800	20,500
	Total Payments	126,100	247,750	269,200
	Excess (short ) of cash available over cash payments	3,900	93,950	180,650
	Borrowings
	Add :Loan taken	101,500	-	-
	Less :Repayment of bank loan	-	-	101,500
	Less :Interest on the bank loan	-	-	3,806
	Ending Cash Balance	105,400	93,950	75,344

Working:

	September	October	November
Opening Cash balance	4,000	105,400	93,950
Add: Collection
Collection of August sales	=150000*44%	=150000*21%	=150000*8%
Collection of September sales	=250000*24%	=250000*44%	=250000*21%
Collection of October sales	-	=395000*0.24	=395000*0.44
Collection of November sales	-	-	=490000*0.24
Total Cash Available	130,000	341,700	449,850
Cash payments
Payment Merchandise purchases of August ( 105,000 )	=105000*0.6	=105000*0.4
Payment Merchandise purchases of September	-	=240000*0.6	=240000*0.4
Payment Merchandise purchases of October	-	-	=200000*0.6
Payroll	20,400	21,950	23,700
Rent	9,000	9,000	9,000
Other cash expenses	33,700	30,800	20,500
Total Payments	126,100	247,750	269,200
Excess (short ) of cash available over cash payments	3,900	93,950	180,650
Borrowings
Add :Loan taken	101,500	-	-
Less :Repayment of bank loan	-	-	101,500
Less :Interest on the bank loan	-	-	3,806
Ending Cash Balance	105,400	93,950	75,344