Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $41,600.

Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	81,200	$	72,000	$	96,200
Sales on account	$	495,000	$	512,000	$	684,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

Purchases of inventory will total $285,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $185,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $455,000 for December. Of this amount, $89,600 is for depreciation.

A new web server for the Marketing Department costing $79,000 will be purchased for cash during December, and dividends totaling $10,000 will be paid during the month.

The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

1)	Schedule of Expected Cash collections
	December cash sales					96,200
	Collections on account
	October sales		(495000*18%)			89100
	november sales		(512000*60%)			307200
	december sales		(684000*20%)			136800
	total cash collections					629,300
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					185,000
	December purchases		(285000*30%)			85500
	total cash payments					270,500
3)	Cash budget
	Beginning cash balance							41,600
	Add collections from customers							629,300
	total cash available							670,900
	less cash disbrsements
	payments to suppliers for inventory						270,500
	Selling and administrative expenses						365,400
	New web server						79,000
	dividends paid						10,000
	total cash disbursements							724,900
	Excess(deficiency) of cash available over disbursement							-54,000
	Financing:
	Borrowings							74,000
	Repayments
	interest
	total financing							74,000
	Ending cash balance							20,000