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:

a.	The cash balance on December 1 is $40,000.
b.	Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	65,000	$	70,000	$	83,000
Sales on account		400,000		525,000		600,000

   

	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.
c.	Purchases of inventory will total $280,000 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 $161,000, all of which will be paid in December.
d.	Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.
e.	A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month.
f.	The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required:
1.	Prepare a schedule of expected cash collections for December.

  

  

2.	Prepare a schedule of expected cash disbursements for merchandise purchases for December.

  

  

3.	Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

  

Answer 1

1.

Schedule of expected cash collections for December

Cash sales	83,000
Cash collected from December sales on account (600,000*20%)	120,000
Cash collected from November sales on account (525,000*60%)	315,000
Cash collected from October sales on account (400,000*18%)	72,000
Expected cash collections for December	590,000

2.

Schedule of expected cash disbursements for merchandise purchases for December

Payment for December purchases (280,000*30%)	84,000
Payment for November purchases	161,000
Expected cash disbursements for merchandise purchases for December	245,000

3.

Cash Budget

Beginning cash balance	40,000
Add : Cash receipts	590,000
Total cash available for use	630,000
Less : Cash disbursements
Merchandise purchases	(245,000)
Selling and administrative (430,000-50,000)	(380,000)
Web server	(76,000)
Dividends	(9,000)
Cash balance before financing	(80,000)
Financing	100,000
Ending cash balance	20,000