Question

Sisters Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Sisters Corporation
Balance Sheet
June 30
Assets
Cash	$	81,000
Accounts receivable		132,000
Inventory		56,250
Plant and equipment, net of depreciation		214,000
Total assets	$	483,250
Liabilities and Stockholders’ Equity
Accounts payable	$	75,000
Common stock		346,000
Retained earnings		62,250
Total liabilities and stockholders’ equity	$	483,250

The company managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $250,000, $270,000, $260,000, and $280,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $46,000. Each month $5,000 of this total amount is depreciation expense and the remaining $41,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

How much is the Company's expected cash collections in the month of August?

Answer 1

Cash Budget for Quarter 3
	July	August	September	Combine for Quarter
Opening Cash Balance	81,000	107,700	128,400	81,000
Collection Accounts Receivable	219,500	257,000	266,500	743,000
Total available Cash	300,500	364,700	394,900	824,000
Payment to Accounts Payable	151,800	195,300	199,950	547,050
Payment to selling and administrative expenses	41,000	41,000	41,000	123,000
Total Payment	192,800	236,300	240,950	670,050
Closing Balance (Available - Payment)	107,700	128,400	153,950	153,950

Cash Collection in the Month of august is $257,000 from customers and Cash expnese in August is =$195,300 + $41,000 = $236,300

Net August Cash Collection by company = $257,000 - $236,300 = $20,700

Working:
	July	August	September	October
Sales	250,000	270,000	260,000	280,000
Cost of good sold (75% of sales)	187,500	202,500	195,000	210,000
Add: Stock for next month 30%	60,750	58,500	63,000
Less: Opening Stock	56,250	60,750	58,500	63,000
Purchase: Cost of goods + Cl. Stock - Op. Stock	192,000	200,250	199,500
Payment of 40% purchase	76,800	80,100	79,800
Payment of 60% purchase- next month		115,200	120,150	119,700
Payment of Accounts Payable - June	75,000
Supplier Payment	151,800	195,300	199,950
Sales collection - 35%	87,500	94,500	91,000	98,000
Sales collection - 65% next month		162,500	175,500	169,000
Accounts receivable collection - June	132,000
Total Account receivable collection	219,500	257,000	266,500