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: a. The cash balance on December 1 is $51,200. b. Actual sales for October and November and expected sales for December are as follows: October November December   Cash sales $ 74,200   $ 79,600   $ 83,600     Sales on account 455,000 550,000   673,000       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. c. Purchases of inventory will total $346,000 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 $177,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $473,000 for December. Of this amount, $75,000 is for depreciation. e. A new web server for the Marketing Department costing $72,000 will be purchased for cash during December, and dividends totaling $17,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed. Required: 1. Prepare a schedule of expected cash collections for December.       2. Prepare a schedule of 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.

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance $0

Answer 1

Solution:

Part 1 --- Schedule of Expected Cash Collection for December

Schedule of Expected Cash Collections
	December
Cash Sales (given)	$83,600
Collection from Sales on Account:
October on Account Sales (18% Collection in December $455,000*18%)	$81,900
November on Account Sales (60% Collection in December $550,000*60%)	$330,000
December on Account Sales (20% Collection in December $673,000*20%)	$134,600
Total Collection	$630,100

Part 2 -- Schedule of expected cash disbursements for merchandise purchases for December

Schedule of Expected Cash Disbursements for Merchandise Purchases for December
	December
Beginning Accounts Payable	$177,000
December Purchases (30% of $346,000 paid in December)	$103,800
Total	$280,800

Part 3 --- Cash Budget

Ashton Company
Cash Budget
For the Month of December
Beginning cash balance	$51,200
Add collections from customers (Refer Part 1)	$630,100
Total cash available		$681,300
Less cash disbursements:
Payments to suppliers for inventory (refer Part 2)		$280,800
Selling and administrative expenses ($473,000 - Deprecation Non Cash Item 75,000)		$398,000
New web server		$72,000
Dividends paid		$17,500
Total cash disbursements		$768,300
Excess (deficiency) of cash available over disbursements		-$87,000
Financing:
Borrowings		$107,000
Repayments
Interest
Total financing		$107,000
Ending cash balance		$20,000

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