Question

Question 3 – Cash Budgeting

Henry’s forecasted data is as follows:

	June	July	August	September	October
Credit Sales	360,000	330,000	300,000	390,000	660,000
Credit Purchases	210,000	240,000	180,000	270,000	600,000

From past experience Henry’s has found that Accounts Receivable pay as follows:

60% in the month the sale

30% in the month following the sale

8% two months after the sale

2% are never collected (become bad debts).

It is Henry’s policy to pay Accounts Payable in the month following the credit purchase.

Cash payments for operating expenses in October are expected to be $144,000.

Required

Prepare a Cash Budget for Henry’s for October.

Answer 1

Cash Budget is management tool of planning prepared for expected cash received and scheduled payment during a given period time. It includes cash received from sales and accounts receivables and Cash payment to accounts payables and for operating expenses.
				Cash Budget
				For the month of October
Cash Receipt:
August Sales(8% x 300,000)	$                24,000
September Sales (30% x 390,000)	117,000
October Sales (60% x 660,000)	396,000
Total Cash Receipts		$              537,000
Less:
September Accounts Payable (270,000)	270,000
Operating Expenses	144,000
Total Cash Payments		$            (414,000)
Net Cash Available		$              123,000