Question

Koshy Company is planning a cash budget for the next three months. Estimated sales revenue is:

Month	Revenue	Month	Revenue
January	$175,000	March	$125,000
February	150,000	April	100,000

Month Sales Revenue Month Sales Revenue

All sales are on credit; 60 percent is collected during the month of sale, and 40 percent is collected during the next month. Cost of goods sold is 80 percent of sales. Payments for merchandise sold are made in the month following the month of sale. Operating expenses total $26,000 per month and are paid during the month incurred. The cash balance on February 1 is estimated to be $35,000.

Prepare monthly cash budgets for February, March, and April.

Answer 1

Answer

It is mentioned that 60% sales is collected in the month of sale and 40% is collected in the next month, So

In the month of February, 60% of February sales are collected and 40% of Jan sales is collected.

In the month of March, 60% of March sales are collected and 40% of February sales is collected.

In the month of April, 60% of April sales are collected and 40% of March sales is collected.

Cost of Goods Sold, COGS is 80% of sales and payment of current month is made next Month.

Jan COGS is deducted from Feb.

Feb. COGS is deducted from March.

March COGS is deducted from April.

Cash Budget
	February	March	April
Cash Balance, Beginning	35,000	29,000	18,000
Cash Receipts:
Jan	70,000	-	-
Feb	90,000	60,000	-
March	-	75,000	50,000
April	-	-	60,000
Total Cash Receipts	160,000	135,000	110,000
Total Cash Available	195,000	164,000	128,000
Disbursements
Cost of Goods Sold (80% of last month sales)	140,000	120,000	100,000
Operating Expenses	26,000	26,000	26,000
Total Disbursements	166,000	146,000	126,000
Cash Balance, Ending	29,000	18,000	2,000