Question

During the last week of August, Oneida Company’s owner approaches the bank for a $103,000 loan to be made on September 2 and repaid on November 30 with annual interest of 15%, for an interest cost of $3,863. The owner plans to increase the store’s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a $4,500 cash balance, $138,600 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.

Budgeted Figures*	September		October		November
Sales	$	220,000	$	465,000	$	520,000
Merchandise purchases		235,000		215,000		197,000
Cash payments
Payroll		20,000		21,850		23,900
Rent		9,000		9,000		9,000
Other cash expenses		33,800		29,200		20,150
Repayment of bank loan						103,000
Interest on the bank loan						3,863

*Operations began in August; August sales were $180,000 and purchases were $110,000.

The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 23% of credit sales is collected in the month of the sale, 47% in the month following the sale, 19% in the second month, 7% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $84,600 of the $180,000 will be collected in September, $34,200 in October, and $12,600 in November. All merchandise is purchased on credit; 60% of the balance is paid in the month following a purchase, and the remaining 40% is paid in the second month. For example, of the $110,000 August purchases, $66,000 will be paid in September and $44,000 in October.

Required:
Prepare a cash budget for September, October, and November. (Round your final answers to the nearest whole dollar.)

Answer 1

Cash Budget: