Question

The following information is from Tejas WindowTint’s financial records.

Month	Sales			Purchases
April	$	82,000		$	46,000
May		75,000			45,000
June		73,000			33,000
July		79,000			51,000

Collections from customers are normally 68 percent in the month of sale, 16 percent in the month following the sale, and 14 percent in the second month following the sale. The balance is expected to be uncollectible. All purchases are on account. Management takes full advantage of the 5 percent discount allowed on purchases paid for by the tenth of the following month. Purchases for August are budgeted at $69,000, and sales for August are forecasted at $75,000. Cash disbursements for expenses are expected to be $15,600 for the month of August. The company’s cash balance on August 1 was $33,000.

Required:
1. Prepare the expected cash collections during August.
2. Prepare the expected cash disbursements during August.
3. Calculate the expected cash balance on August 31.

Answer 1

Particulars	Amount
Collection of August Sales	51,000
Add: Collection of July Sales	12,640
Add: Collection of June Sales	10,220
Total Cash Collectios for August	73,860

Notes

Collection of August Sales = 68% of August Sales = 68% of $ 75,000 = $ 51,000

Collection of July Sales = 16% of July Sales = 16% of 79,000 = $ 12,640

Collection of June Sales = 14% of June Sales = 14% of 73,000 = $ 10,220

Question 2

Particulars	Amount
Payment for Purchase	48,450
Add: Payment for Expenses	15,600
Total Cash Payments during August	64,050

Notes

Payment for Purchase of July in Month of August

= July Purchase - 5% Discount on July Purchases

= 51,000 - 2,550

= $ 48,450

Question 3

Particulars	Amount
Opening Cash Balance	33,000
Add: Cash Collection during August	73,860
Total Cash Available	106,860
Less: Cash Payments during August	64,050
Cash Balance August 31	42,810