Question

ou 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:

1. The cash balance on December 1 is $51,800.

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

	October		November		December
Cash sales	$	80,000	$	82,000	$	89,200
Sales on account	$	470,000	$	503,000	$	638,000

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.

3. Purchases of inventory will total $338,000 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 $163,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at $434,000 for December. Of this amount, $80,400 is for depreciation.

5. A new web server for the Marketing Department costing $98,000 will be purchased for cash during December, and dividends totaling $16,000 will be paid during the month.

6. 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.

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

Step 1

1. The cash collections in December is as follows

Cash Collection	$	Explanations
December Cash sales	89200
Cash from October Credit Sales	84600	470000*18%
Cash from November Credit Sales	301800	503000*60%
Cash from December credit Sales	127600	638000*20%
Total Cash collection	603200

Step 2

2. Cash disbursal for merchandise purchase

	$	Explanation
Cash for November purchases	163000
Cash for December purchases	101400	=338000*30%
Total	264400

Step 3

3.Since, depreciation is a non-case expense, it has been excluded from selling and distribution

Cash budget for December $

Opening Cash	51800
Add Cash collections	603200
Add. Loan from banks(balancing figure)	81,400
Less
Cash disbursal for merchadise purchase	-264400
Selling and Administartive expense	-338000
Investiment in web server	-98000
Dividends paid	-16000
Closing Balance 20000