Question

In: Accounting

The following information is from Tejas WindowTint’s financial records. Month Sales Purchases April $ 72,000 $...

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

Month Sales Purchases
April $ 72,000 $ 48,000
May 68,000 48,000
June 62,000 36,000
July 81,000 54,000

Collections from customers are normally 69 percent in the month of sale, 19 percent in the month following the sale, and 11 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 4 percent discount allowed on purchases paid for by the tenth of the following month. Purchases for August are budgeted at $68,000, and sales for August are forecasted at $74,000. Cash disbursements for expenses are expected to be $14,200 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.

Solutions

Expert Solution

SOLUTION:

We are given the followings in the question:

1. Collections are normally,

  • 69 percent in the month of sale,
  • 19 percent in the month following the sale, and
  • 11 percent in the second month following the sale.
  • The balance is expected to be uncollectible.

2. 4 percent discount allowed on purchases paid for by the tenth of the following month.

3. Purchases for August are budgeted at $68,000, and

Sales for August are forecasted at $74,000.

Cash disbursements for expenses are expected to be $14,200 for the month of August.

The company’s cash balance on August 1 was $33,000.

1. EXPECTED CASH COLLECTION DURING AUGUST:

Expected Cash Collections for the month of August

MONTH SALES PERCENTAGE EXPECTED COLLECTIONS
June 62,000 11% 6,820
July 81,000 19% 15,390
August 74,000 69% 51,060
TOTAL EXPECTED CASH COLLECTIONS 73,270

2. EXPECTED CASH DISBURSEMENTS DURING AUGUST:

Expected Cash Disbursement for the month of August

PARTICULARS AMOUNT
July Purchases to be paid in August 54,000
Less : Cash Discount (4%) (2,160)
Cash Disbursement for Purchases 51,840
Add : Cash Disbursement for Expenses for August 14,200
TOTAL EXPECTED CASH DISBURSEMENTS 66,040

3. EXPECTED CASH BALANCE ON AUGUST 31:

Expected Cash Balance on August 31

PARTICULARS AMOUNT
Cash Balance on August 1 33,000
Add : Expected Cash Collection for the month of August 73,270
Less: Expected Cash Disbursement for the month August (66,040)
EXPECTED CASH BALANCE ON AUGUST 31 40,230

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