Question

Raelynn is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for merchandise for the next three months follow.

Budgeted	July	August	September
Sales	69,250	85,400	54,750
Cash payments for merchandise	42,950	39,300	33,600

Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $15,000 in cash; $45,000 in accounts receivable; $4,500 in accounts payable; and a $5,000 balance in loans payable. A minimum cash balance of $15,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning-of-the-month loan balance and is paid at each month-end. If any excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), office salaries ($4,000 per month), and rent ($6,500 per month).

Use the information provided above to prepare a cash budget, and any necessary supplemental schedules. Then use the information above, your budget and your supplemental schedules to answer the following questions.

1. How much cash is expected to be collected in July?

2. How much cash is expected to be collected in August?

3. How much cash is expected to be paid out in July?

4. How much cash is expected to be paid out in September?

5. How much interest is expected to be paid out in August?

6. What is the ending cash balance at the end of July?

7. What is the ending cash balance at the end of September?

8. How much of the loan can be paid back at the end of August?

Answer 1

preparation of cash budget of Raelynn :

particular	july	august	september
opening cash balance	$15000	$15000	$22499.25
receipts :
cash sales	$13850	$17080	$10950
collection from account receivable	$45000	$55400	$68320
total cash available for payments (a)	$73850	$87480	$101769.25
payments :
cash payments for merchandise	$42950	$39300	$33600
sales commision (10% of sales)	$6925	$8540	$5475
office salaries	$4000	$4000	$4000
rent	$6500	$6500	$6500
repayment of principle loan	$5000	$6575	0
payment of interst on loan (1% of loan)	$50	$65.75	0
total cash payments (b)	$65425	$64980.75	$49575
net cash balance (c=a-b)	$8425	$22499.25	$52194.25
minimum cash balance (d)	$15000	$15000	$15000
ending cash balance (c or d whichever higher)	$15000	$22499.25	$52194.25
loan taken at the end of the month (e=d-c)	$6575	0	0

note : it is assumed that account payable balance at the end of june month $4500 will be included in the Cash payments for merchandise $42950 july month.

collection of cash from account receivable :

particular	july	august	september
sales	$69250	$85400	$54750
20% cash sales	$13850	$17080	$10950
80% credit sales	$55400	$68320	$43800
collection from credit sales :
opening balance of account receivables	$45000	$55400	$68320
collection in the month following the sale	$45000	$55400	$68320

1) cash expected to be collected in july from cash and credit sales = $13850 + $45000 = $58850

cash expected to be collected in july from credit sales = $45000

total cash available for payments in july = $73850

2) cash expected to be collected in august from cash and credit sales = $17080 + $55400 = $72480

cash expected to be collected in august from credit sales = $55400

total cash available for payments in august = $87480

3) total cash expected to be paid out in july = $65425

4) total cash expected to be paid out in september = $49575

5) interest expected to be paid out in august = $$65.75

6) ending cash balance at the end of july = $15000

net cash balance after cash payments and before loan obtained = $8425

7) ending cash balance at the end of september = $52194.25

8) $6575 of principle loan paid at the end of august

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