Question

Schedule of Cash Payments for a Service Company

EastGate Physical Therapy Inc. is planning its cash payments for operations for the first quarter (January–March). The Accrued Expenses Payable balance on January 1 is $25,000. The budgeted expenses for the next three months are as follows:

	January		February		March
Salaries	$57,500		$70,000		$77,500
Utilities	4,800		5,300		6,300
Other operating expenses	43,700		47,600		52,400
Total	$106,000		$122,900		$136,200

Other operating expenses include $3,200 of monthly depreciation expense and $700 of monthly insurance expense that was prepaid for the year on May 1 of the previous year. Of the remaining expenses, 70% are paid in the month in which they are incurred, with the remainder paid in the following month. The Accrued Expenses Payable balance on January 1 relates to the expenses incurred in December.

Prepare a schedule of cash payments for operations for January, February, and March. Enter all amounts as positive numbers.

EastGate Physical Therapy Inc.
Schedule of Cash Payments for Operations
For the Three Months Ending March 31
	January	February	March
	$	$	$
Total cash payments	$	$	$

Answer 1

	January	February	March
Total expenses	$106,000	$122,900	$136,200
(-) Monthly depreciation	( $3,200 )	( $3,200 )	( $3,200 )
(-) Prepaid monthly insurance	( $700 )	( $700 )	( $700 )
Total payable expenses	$102,100	$119,000	$132,300

Note : Depreciation is a non cash expenditure and prepaid insurance is a expense that is already paid by the company on May 1 of the previous year for a year [ i.e. for May 1 of previous year to April 30 of this year ] and hence they are deducted from the total expenses to get the total payable expenses.

Schedule of cash payments for operations :

	January	February	March
Total payable expenses	$102,100	$119,000	$132,300
Cash payments :
70% of the current month	$71,470 [ 70% * $102,100 ]	$83,300 [ $119,000 * 70% ]	$92,610 [ $132,300 * 70% ]
30% of the previous month	$25,000	$30,630 [ $102,100 * 30% ]	$35,700 [ $119,000 * 30% ]
Total cash payments	$96,470	$113,930	$128,310