Question

Exercise 20-32A Merchandising: Cash budget LO P4

Kelsey 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		$	63,200				$	80,800				$	48,800
Cash payments for merchandise			42,000					32,800					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 $13,100 in cash; $48,000 in accounts receivable; $5,300 in accounts payable; and a $2,800 balance in loans payable. A minimum cash balance of $12,800 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 an 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 ($4,800 per month), and rent ($7,300 per month).

(1) Prepare a cash receipts budget for July, August, and September.
(2) Prepare a cash budget for each of the months of July, August, and September.

Answer 1

1			Cash receipts budget:
					July	August	September
	Budgeted sales			a	63200	80800	48800
	Cash sales at 20%			b=a*20%	12640	16160	9760
	Credit sales at 80%			c=a*80%	50560	64640	39040
	Collection of credit sales in the
	following month			d	48000	50560	64640
					(June 30 bal.)
	Total cash receipts			b+d	60640	66720	74400
2			Cash budget
						July	August	September
	Beginning cash balance				a	13100	12800	24209
	Cash receipts				b	60640	66720	74400
	Cash available				c=a+b	73740	79520	98609
	Cash payments:
	Cash payments for merchandise					42000	32800	33600
	Sales commission					6320	8080	4880
	(Sales*10%)					(63200*10%)	(80800*10%)	(48800*10%)
	Office salaries					4800	4800	4800
	Rent					7300	7300	7300
	Interest expense					28	23
						(2800*1%)	(2800-492)*1%
	Total cash payments				d	60448	53003	50580
	Ending cash balance before financing				e=c-d	13292	26517	48029
	Minimum cash balance desired				f	12800	12800	12800
	Projected cash excess (deficiency)				g=e-f	492	13717	35229
	Financing:
	Borrowing
	Principal repayments					-492	-2308
							(2800-492)
	Total effects of financing				h	-492	-2308	0
	Ending cash balance				e+h	12800	24209	48029