Question

CASH BUDGET PROBLEM Milton Company is a chocolate wholesaler. The company presents the following information to the date of April 30: Cash ................................................ .. $ 9,000 Accounts receivable ........................ .. 54,000 Inventory .......................................... .. 30,000 Building and equipment, net ...... .. 207,000 Accounts payable ........................... $ 63,000 Note payable ... ........................... .. 14,500 Stock capital ........................... ... . 180,000 Retained earnings ... ..................... 42,500 The company is in the process of preparing the budget for the month of May. Below are a series of items to prepare the cash budget:

A. The sales budgeted for May are $ 200,000. Of that item , 30% is charged at the moment and the rest is credit sales. 50% of credit sales are collected in the month of sale and the remainder is charged in the following month. All accounts receivable as of April 30 are collected in May.

B. Inventory purchases are expected to be $ 120,000 in the month of May. They are all on credit. 40% of purchases are paid in the month of purchase, the remainder in the following month. All accounts payable as of April 30 are paid in May.

C. The inventory balance at May 31 budgeted is $ 40,000

D. The sales and administration expenses for May budgeted are $ 72,000. These expenses are paid in Cash. Depreciation is budgeted at $ 2,000 per month.

E The Note to Pay (Note Payable ) on April 30 will be paid in May, with an additional $ 100 of interest. 6 I buy a new equipment that costs $ 6,000 to be paid in cash in May.

F In May, he takes a loan for $ 20,000 from the Bank, signing a note that expires in one year. Requirements: Prepare a Cash Budget for the month of May. Support this Budget with the Schedule of Cash Collection from sales "and Shedule of Cash Disbursements "for merchandise purchases. Prepare an Income statement

Answer 1

First of all we will prepare schedule of cash collection from sales.

Schedule of Cash Collection from Sales: For the Month of May

Particulars	$
Cash Collection at the moment of Sale: (30% is charged at the moment of sale, so $200000 x 30%)	60000
Cash Collection of Credit Sales: (50% of credit sales are collected in the same month, so $200000 x 70% (as 30% is already collected) = $140000 x 50% (50% collected in the same month) = $70000	70000
Acccounts Receivable as on April 30 (All are collected in May)	54000
Total	184000

Now we will prepare schedule for cash disbursement for merchandise purchases.

Schedule of Cash Disbursement for Merchandise Purchases:

Particulars	$
Cash Payment on Budgeted Inventory Purchases: (40% of inventory purchases are paid in the same month, so $120000 x 40%)	48000
Payments of Accounts Payable as on April 30 (All accounts payable as on 30th April are paid in May)	63000
Total	111000

Now we will prepare the Cash Budget. In cash budget we don't consider any non cash income or expenditure. Ex: Depreciation on assets.

Cash Budget

For the Month of May

Particulars	May $
Receipts:
Cash Collection from Sales (Refer 1st Schedule)	184000
Receipts From Loan	20000
Total Receipts (A)	204000
Payments:
Cash Disbursement for Merchandise Purchases (Refer 2nd Schedule)	111000
Sales & Administration Expenses Paid	72000
Note Payable Paid ($14500 + $100 interest)	14600
Equipment Purchased in Cash	6000
Total Payments (B)	203600
Net Receipts (A-B)	400
Opening Cash Balance as on April 30th	9000
Budgeted Closing Balance as on May 31st	9400

Now let us prepare an income statement. In the income statement, we consider all the income and expenditure pertaining to the current period, that is the month of May. We don't consider cash here!

Milton Company

Income Statement

For the Month of May

Particulars	$	$
Sales Revenue: (Budgeted Sales)		200000
Less: Cost of Goods Sold:
Opening Stock	30000
Inventory Purchase	120000
Less: Closing Stock	(40000)	(110000)
Gross Profit: ($200000 - $110000)		90000
Selling & Administration Expenses		(72000)
Interest Paid on Notes Payable		(100)
Depreciation		(2000)
Income From Operations		15900

I hope you got every point of the answer. In case of any doubt, do comment! Thank You!