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 $56,600.

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

	October		November		December
Cash sales	$	71,200	$	73,400	$	86,200
Sales on account	$	440,000	$	576,000	$	639,000

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 $315,000 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 $181,500, all of which will be paid in December.

Selling and administrative expenses are budgeted at $522,000 for December. Of this amount, $74,100 is for depreciation.

A new web server for the Marketing Department costing $103,500 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					86,200
	Collections on account
	October sales		(440000*18%)			79200
	november sales		(576000*60%)			345600
	december sales		(639000*20%)			127800
	total cash collections					638,800	answer
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					181,500
	December purchases		(315000*30%)			94500
	total cash disbursement					276,000	answer
3)	Cash budget
	Beginning cash balance							56,600
	Add collections from customers							638,800
	total cash available							695,400
	less cash disbrsements
	payments to suppliers for inventory						276,000
	Selling and administrative expenses						447,900
	New web server						103,500
	dividends paid						10,000
	total cash disbursements							837,400
	Excess(deficiency) of cash available over disbursement							-142,000
	Financing:
	Borrowings							162,000
	Repayments							0
	interest							0
	total financing							162,000
	Ending cash balance							20,000