Question

You have been asked to prepare a December cash budget for Garrick Company. The following information is available for December for Garrick Company’s operations:

a. The cash balance on December 1 is $44,400.

b. Actual sales for October and November and expected sales for December are as follows: October November December Sales on account $500,000 $700,000 $720,000

c. Sales on account are collected over a three-month period as follows: 30% collected in the month of sale and 60% collected in the month following sale, and 180% collected in the second month following sale.

d. Purchases of inventory will total $358,000 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 $207,000, all of which will be paid in December.

e. Selling and administrative expenses are budgeted at $459,000 for December. Of this amount, $64,500 is for depreciation.

f. A new web server for the Marketing Department costing $114,000 will be purchased for cash during December, and dividends totaling $9,500 will be paid during the month.

g. 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)
CASH COLLECTIONS FOR DECEMBER
Collections on account:
October sales: $500,000×10%	$   50,000.00
November sales: $700,000×60%	$ 420,000.00
December sales: $720,000×30%	$ 216,000.00
Total cash collections	$ 686,000.00
2)
CASH PAYMENTS TO SUPPLIERS
November purchases (accounts payable)	$ 207,000.00
December purchases: $358000×30%	$ 107,400.00
Total cash disbursements	$ 314,400.00
3)
Garrick  Company
Cash Budget
FOR MONTH ENDED 12-31-17
Beginning Cash Balance		$    44,400.00
Add Collection from customers		$  686,000.00
Total Cash available		$  730,400.00
Less: Cash disbursements
Payment to suppliers for merchandise	$ 314,400.00
Selling and administrative expenses (459000 - 64500)	$ 394,500.00
New Web server	$ 114,000.00
Dividends Paid	$     9,500.00
Total Cash disbursements		$ (832,400.00)
Excess(deficiency) of cash available over disbursements		$ (102,000.00)
Financing :
Borrowings	$ 122,000.00
Repayments	$                -
Interest	$                -
Total Financing		$  122,000.00
Ending cash balance		$    20,000.00