Question

During the last week of August, Oneida Company’s owner approaches the bank for a $103,000 loan to be made on September 2 and repaid on November 30 with annual interest of 14%, for an interest cost of $3,605. The owner plans to increase the store’s inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Oneida is expected to have a $4,000 cash balance, $116,800 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.

Budgeted Figures*	September		October		November
Sales	$	240,000	$	435,000	$	510,000
Merchandise purchases		235,000		215,000		192,000
Cash payments
Payroll		20,000		21,900		23,800
Rent		8,000		8,000		8,000
Other cash expenses		34,200		29,000		20,450
Repayment of bank loan						103,000
Interest on the bank loan						3,605

*Operations began in August; August sales were $160,000 and purchases were $105,000*.
The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 27% of credit sales is collected in the month of the sale, 44% in the month following the sale, 22% in the second month, 6% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $70,400 of the $160,000 will be collected in September, $35,200 in October, and $9,600 in November. All merchandise is purchased on credit; 40% of the balance is paid in the month following a purchase, and the remaining 60% is paid in the second month. For example, of the $105,000 August purchases, $42,000 will be paid in September and $63,000 in October.

QUESTION: Prepare a cash budget for September, October, and November, INCLUDING the calculation of cash reciepts from sales and the calculation of cash payments for merchandise from AUGUST, SEPTEMBER, OCTOBER, and NOVEMBER.

	ONEIDA COMPANY Cash Budget For September, October, and November September October November Beginning cash balance $4,000 Cash receipts Total cash available Cash payments: Total cash payments 0 0 0 Ending cash balance

Answer 1

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1. Cash Receipt:
		September	October	November
August Sale		$     70,400	$ 35,200	$       9,600
Sept Sale		$     64,800	$105,600	$     52,800
Oct Sale			$117,450	$   191,400
Nov Sale				$   137,700
		$   135,200	$258,250	$   391,500
2. Cash Payment for Pur
		September	October	November
Aug Pur		$     42,000	$ 63,000
Sep Pur			$ 94,000	$   141,000
Oct Pur				$     86,000
Nov Pur
		$     42,000	$157,000	$   227,000
3. Cash Budget
		September	October	November
Beginning Cash Balance		$        4,000	$138,000	$   180,350
Cash Receipt		$   135,200	$258,250	$   391,500
Bank Loan		$   103,000
Total Cash Available		$   242,200	$396,250	$   571,850
Cash Payment for:
Purchase		$     42,000	$157,000	$   227,000
Payroll		$     20,000	$ 21,900	$     23,800
Rent		$        8,000	$    8,000	$       8,000
Other Csah Expense		$     34,200	$ 29,000	$     20,450
Repayment of Bank Loan				$   103,000
Interest on Bank Loan				$       3,605
Total Cash Payment		$   104,200	$215,900	$   385,855
Ending cash Balance		$   138,000	$180,350	$   185,995