Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $47,000.

Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	83,000	$	79,000	$	85,600
Sales on account	$	500,000	$	624,000	$	674,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

Purchases of inventory will total $372,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $189,500, all of which will be paid in December.

Selling and administrative expenses are budgeted at $502,000 for December. Of this amount, $69,000 is for depreciation.

A new web server for the Marketing Department costing $88,500 will be purchased for cash during December, and dividends totaling $14,500 will be paid during the month.

The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

Total cash collections
Total cash disbursements

Calculate the expected cash disbursements for merchandise purchases for December.

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance

Answer 1

1)	Schedule of Expected Cash collections
	December cash sales					85,600
	Collections on account
	October sales		(500000*18%)			90000
	november sales		(624000*60%)			374400
	december sales		(674000*20%)			134800
	total cash collections					684,800	answer
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					189,500
	December purchases		(372000*30%)			111600
	total cash disbursement					301,100	answer
3)	Cash budget
	Beginning cash balance							51,800
	Add collections from customers							684,800
	total cash available							736,600
	less cash disbrsements
	payments to suppliers for inventory						301,100
	Selling and administrative expenses						433,000
	New web server						88,500
	dividends paid						14,500
	total cash disbursements							837,100
	Excess(deficiency) of cash available over disbursement							-100,500
	Financing:
	Borrowings							120,500
	Repayments							0
	interest							0
	total financing							120,500
	Ending cash balance							20,000