Question

1. Winged Corp. wants you to prepare a Cash budget for the Christmas period. It has arranged a line of credit with the bank to borrow against whenever cash is needed. Sales are made on credit basis with terms of 1/10 net 30. The collection of accounts are estimated to be: 10% in the month of sale and will take the discount, 75% in the following month and not take the discount, and 15% in the second month following and not take the discount. Purchases are all paid in the following month. Salaries are $4,800 per month and rent is $2,000 per month. A tax payment of $12,000 must be made in December. The current cash on hand is $1,000 but management wants a target minimum balance of $6,000.

            The sales and purchases for the months are:

                                                           Sales                            Purchases

                        October                                   $120,000                     $40,000

                        November                   $140,000                     $40,000

                        December                    $160,000                     $20,000

                        January                        $80,000                                   $20,000

                        February                      $40,000                                   $20,000          

            Prepare a cash budget for December, January, and February.

Answer 1

	December	January	February
Opening balance	1,000	79,600	201,000
Collection of current month	14,400	7,200	3,600
Collections of last month	105,000	120,000	60,000
Collections of the month before the last month	18,000	21,000	24,000
Total available cash	138,400	227,800	288,600
less: payments
Purchases	40,000	20,000	20,000
Salary	4,800	4,800	4,800
Rent	2,000	2,000	2,000
Tax payment	12,000	-	-
Total payments	58,800	26,800	26,800
Closing cash balance	79,600	201,000	261,800

Calculations and formulas can be seen below: