Question

Ojai Products, a distributor of organic beverages, needs a cash budget for September. The following information is available: a. The cash balance at the beginning of September is $14,000. b. Actual sales for July and August and expected sales for September are as follows: July August September Cash sales $ 8,500 $ 6,500 $ 11,900 Sales on account 22,200 27,200 38,200 Total sales 30,700 33,700 50,100 Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 65% collected in the month following sale, and 21% collected in the second month following sale. The remaining 4% is uncollectible. c. Purchases of inventory will total $22,600 for September. Thirty percent of a month's inventory purchases are paid for during the month of purchase. The accounts payable remaining from August's inventory purchases total $13,600, all of which will be paid in September. d. Selling and administrative expenses are budgeted at $15,200 for September. Of this amount, $5,200 is for depreciation. e. Equipment costing $20,400 will be purchased for cash during September, and dividends totaling $2,800 will be paid during the month. f. The company maintains a minimum cash balance of $10,000. An open line of credit is available from the company’s bank to bolster the cash balance as needed. Required: 1. Prepare a schedule of expected cash collections for September. (Do not round intermediate calculations.) 2. Prepare a schedule of expected cash disbursements for inventory purchases for September. (Do not round intermediate calculations.) 3. Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September. Assume that any interest will not be paid until the following month.

Answer 1

1. Expected Cash Collections for September

Cash Sales		11900
Cash collections from July month sales	22200x21%	4662
Cash collections from August month sale	27200x65%	17680
Cash collections from September month sale	38200x10%	3820
Total		38062

2. Expected Cash disbursments for Inventor Purchase

August month balances paid =13600

Paid for September month Purchase = 6780 (22600x30%)

TOTAL = 20380

3. Cash Budget for September month

Opening Cash Balances	14000
Add: Cash collections on account of sales	38062
Less: Paid on account of Inventory	20380
Less: Selling and administrative expenses (15200-5200)	10000
Less: Equipment Purchased	20400
Less: Divicend paid	2800
Add: Cash from open line Credit	11518
Closing cash Balance	10000

* Total cash balance before considering the credit is -1518. Company has to keep minimum of 10000 as balance. So company has to borrow 11518 from open line credit