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 $46,000.

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

	october	november	december
cash sales	78,200	77,600	95,000
sales on account	460,000	534,000	606,000

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 $352,000 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 $209,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $505,000 for December. Of this amount, $60,700 is for depreciation.

A new web server for the Marketing Department costing $102,000 will be purchased for cash during December, and dividends totaling $16,500 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					95,000
	Collections on account
	October sales		(460000*18%)			82800
	november sales		(534000*60%)			320400
	december sales		(606000*20%)			121200
	total cash collections					619,400
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					209,000
	December purchases		(352000*30%)			105600
	total cash payments					314,600
3)	Cash budget
	Beginning cash balance							46,000
	Add collections from customers							619,400
	total cash available							665,400
	less cash disbrsements
	payments to suppliers for inventory						314,600
	Selling and administrative expenses						444,300
	New web server						102,000
	dividends paid						16,500
	total cash disbursements							877,400
	Excess(deficiency) of cash available over disbursement							-212,000
	Financing:
	Borrowings							232,000
	Repayments							0
	interest							0
	total financing							232,000
	Ending cash balance							20,000