Question

The management estimates total sales for the period January through June based on
actual sales from the immediate past six months. The following assumptions are made:
1. The Sales were $150,000 in January 2018 and then the sales grew by 10% each
month for the first five months (February to June). The sales are expected to grow
by 5% each month thereafter.
2. 50% of the Sales are collected in the same month. 45% of the sales are collected
in the following month and remainder are not collected.
3. The Purchases are 20% of sales and paid in the same month.
4. Wages and Salaries are $10,000 each month and paid in the same month.
5. Depreciation expense is $5,000 each month.
6. An equipment worth $100,000 will be purchased with cash in October.
7. The company’s debt is $50,000 and the company pays coupon payments in June
and December of each year. The coupon rate is 10% per year.
8. Rent Expenses will be $5000 and will be paid at the end of each calendar quarter.
Determine the cash surplus and shortages for each month from July to December.
Provide your analysis.

Answer 1

Statement showing cash budget

Particulars	Jan	Feb	Mar	Aprl	May	June	July	August	Sept	Oct	Nov	Dec
Sales	150000	165000	181500	199650	219615	241577	253655	266338	279655	293638	308320	323736
Collection
-50% in same month	75000	82500	90750	99825	109808	120788	126828	133169	139827	146819	154160	161868
-45% in following month		67500	74250	81675	89843	98827	108709	114145	119852	125845	132137	138744
Total collection of Sales---(A)	75000	150000	165000	181500	199650	219615	235537	247314	259680	272664	286297	300612
Purchases	30000	33000	36300	39930	43923	48315	50731	53268	55931	58728	61664	64747
Wages and salaries	10000	10000	10000	10000	10000	10000	10000	10000	10000	10000	10000	10000
Purchase of equipment										100000
Interest expense						2500						2500
Rent Expense			5000			5000			5000			5000
Total Cash out flow ------(B)	40000	43000	51300	49930	53923	65815	60731	63268	70931	168728	71664	82247
Cash surplus/shortage ----(A)-(B)	35000	107000	113700	131570	145727	153800	174806	184046	188749	103936	214633	218365

Note : Depreciation is non cash expense