Question

An industrial goods wholesaler has provided the following information regarding the budget planning process:

• Sales budgets:
  • November - $190,000
  • December - $160,000
  • January - $140,000
• Cash sales are expected to be 25% of total sales.
• Collections of credit sales are expected to be 85% in the month of sale and 15% in the month following the sale.
• The planned cost of goods sold is 80% of sales.
• The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase.
• The October ending inventory is expected to be $60,000.
• The November beginning balance in the accounts receivable account is $37,000 and is collected in November.
• The November beginning balance in the accounts payable account is $120,000 and is paid in November.

Required:

1. Prepare a Schedule of Expected Cash Collections for November and December. (8)
2. Prepare a Merchandise Purchases Budget and a Schedule of Cash Payments for November and December. (12)
3. What is the accounts receivable balance at the end of December? (2)
4. What is the accounts payable balance at the end of December? (2)

Answer 1

1.)	Schedule of Expected Cash Collections for November and December.
		November	December
	Collection of accounts receivable of november beginning	37,000	-
	Cash sales collection	47,500	40,000
	Collection of credit sales of november	121,125	21,375
	Collection of credit sales of December	-	102,000
	Expected cash collections	205,625	163,375
2.)	Merchandise Purchases Budget
		November	December
	Cost of goods sold	152,000	128,000
	Add: desired ending inventory	51,200	44,800
	Total Needed	203,200	172,800
	Less: Opening inventory	60,000	51,200
	Budgeted Purchase	143,200	121,600
	Schedule of Cash Payments for November and December.
		November	December
	Payment of accounts payable of november beginning	120,000	-
	Payment of Purchase of November	-	143,200
	Total Cash payments	120,000	143,200
3.)	Accounts receivable balance at the end of December is $ 18,000    ( 160,000 x 75% x 15% ).
4.)	Accounts payable balance at the end of December is $ 121,600.