In: Accounting
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.
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 |