Question

Hannah Louisa, the sole owner of Hannah’s Hair Fashions has prepared a budgeted profit and loss statement for the month of May.   She has asked you to prepare a Cash Budget for the business for May so that she can determine how much cash she can withdraw during May and still maintain her desired minimum monthly cash balance of $600. She provides you with the following additional information about the business. The business pays for 70% of its purchases in the month of purchase and 30% in the month following the purchase. Sixty per cent of all sales are collected in the month of sale and 40% the following month.

The annual insurance premium was prepaid in January and the quarterly rates are to be paid in May $270. All other cash expenses are paid in the current month. The cash at bank balance at 1 May was $775. A new piece of hair styling equipment costing $180 will be paid for in May.

Additional information is as follows:

April sales                        $1,760

April purchases                   1020

May purchases                   1320

HANNAH’S HAIR FASHIONS

Budgeted Profit and Loss Statement

For the month of May

Sales revenue                                                                       $2200

Cost of goods sold                                                   990

Gross profit                                                                         1210

Operating expenses:

          Insurance expense                                                    75

          Rent expense                                           150

          Wages expense                                       550

     Rates expense                                                           90

          Depreciation expense                                50

                                                                                     915

Net profit                                                                         $295

Required:

1. Prepare a cash budget for the month of May.                 
2. How much cash can the owner of Hannah’s Hair Fashions withdraw during May and still maintain the minimum cash balance required? It may occur that she needs to contribute cash to maintain the required minimum cash balance.                                           

    

Answer 1

for formulas and calculations, refer to the image below -