In: Accounting
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:
Prepare the expected cash collections during August.
Prepare the expected cash disbursements during August.
Calculate the expected cash balance on August 31.
SOLUTION:
We are given the followings in the question:
1. Collections are normally,
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 |