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 $40,000.

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

	October		November		December
Cash sales	$	65,000	$	70,000	$	83,000
Sales on account	$	400,000	$	525,000	$	600,000

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 $280,000 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 $161,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.

A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 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.

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.

	Total cash collections Total cash disbursements

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance $0

Answer 1

PREPARE A SCHDULE OF EXPECTED CASH COLLECTION FOR DECEMBER :

ASHTON COMPANY

1) SCHDULE OF EXPECTED CASH COLLECTION :

DECEMBER CASH SALES		83000
COLLECTION ON ACCOUNT :
OCTOBER SALES	(400000*18%)	72000
NOVEMBER SALES	(525000*60%)	315000
DECEMBER SALES	(600000*20%)	120000
TOTAL CASH COLLECTION		590000

PREPARE SCHDULE OF EXPECTED CASH PAYMENT TO SUPPLIER :

ASTHON COMPANY

2) SCHDULE OF EXPECTED CASH PAYMENT

PAYMENT TO SUPPLIER
DECEMBER PURCHASE	(280000*30%)	84000
NOVEMBER PURCHASE		161000
TOTAL CASH PAYMENT		245000

3) PREPARE CASH BUDGET FOR DECEMBERR :

ASTHON COMPANY

CASH BUDGET

BEGINNING CASH BALANCE		40000
ADD : COLLECTION FROM CUSTOMER		590000
TOTAL CASH AVAILABLE		630000
LESS :CASH DISBURSEMENT
PAYMENT TO SUPPLIER FOR INVENTORY	245000
SELLING & ADMINISTRATIVE EXPENSES(430000-50000)	380000
NEW WEB SERVER	76000
DIVIDEND PAID	9000
TOTAL CASH DISBURSEMENT		(710000)
EXCESS ( DEFICIENCY) OF CASH AVAILABLE OVER DISBURSEMENT		(120000)
FINANCING :
BORROWINGS(120000+20000)		140000
REPAYMENT
INTEREST
TOTAL FINANCING
ENDING CASH BALANCE		20000