ABC Enterprises has asked for your assistance in preparing a cash budget for the month of...

ABC Enterprises has asked for your assistance in preparing a cash budget for the month of December 2020 and has provided projected sales revenue data below:

Projected sales:

October 2020

$144,000

November 2020

$205,000

December 2020

$220,000

All sales are on credit with 65% collected during the month of sale, 18% collected during the month following the sale, 15% during the second month after the sale and 2% uncollectable. Required:

a) Prepare the cash receipts section of a cash budget for ABC Enterprises for the month of December 2020.

b) Explain how ABC Enterprises would go about constructing a cash budget for the first three months of 2021. Note that ABC plans to purchase a major piece of equipment costing $500,000 in February 2021.

Solutions

Expert Solution

INFORMATION GIVEN IN QUESTION:

Credit Sales of

October 2020 = $ 144,000

November 2020 = $ 205,000

December 2020 = $ 220,000

Credit terms - 65% in same month, 18% in following month, 15% in second month following sales & non recoverable 2%

ANSWER:

A. Cash receipts section of a cash budget for ABC Enterprises for the month of December 2020.

Sales Month	December 2020
OCTOBER 2020 ( 144,000 X 15%)	$ 21,600
NOVEMBER 2020 (205,000 X 18%)	$ 36,900
DECEMBER 2020 (220,000 X 65%)	$ 143,000
TOTAL	$201,500

B. How ABC Enterprises would go about constructing a cash budget for the first three months of 2021

DETAILS	JANUARY 2021	FEBRUARY 2021	MARCH 2021
OPENING BALANCE	XXX	XXX	XXX
ADD: COLLECTION FROM CUSTOMERS	XXX	XXX	XXX
ADD: OTHER CASH RECIEVED	XXX	XXX	XXX
TOTAL CASH AVAILABLE FOR PAYMENTS	XXX	XXX	XXX
LESS: PAYMENT TO SUPPLIERS	(XXX)	(XXX)	(XXX)
LESS: PAYMENT FOR EXPENSES	(XXX)	(XXX)	(XXX)
LESS: PURCHASE OF EQUIPMENT	-	(500,000)	-
LESS: ANY OTHER PAYMENTS	(XXX)	(XXX)	(XXX)
CLOSING BALANCE	XXX	XXX	XXX

ekkarill92 answered 1 year ago

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