Question

Exercise 7-14

Sheridan Company expects to have a cash balance of $57,950 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

1.Collections from customers: January $82,950, February $157,950.

2.Payments to suppliers: January $51,950, February $86,950.

3.Wages: January $31,790, February $41,790. Wages are paid in the month they are incurred.

4.Administrative expenses: January $22,790, February $25,790. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.

5.Selling expenses: January $16,790, February $21,790. These costs are exclusive of depreciation. They are paid as incurred.

6.Sales of short-term investments in January are expected to realize $13,790 in cash. Sheridan Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $31,950.

Prepare a cash budget for January and February

Answer 1

Prepare the cash budget as follows:

Sheridan Company
Cash Budget
For the Months of January and February
	January	February
Cash balance, beginning	57950	32370
Add:  Cash Receipts
Collection from customers	82950	157950
Sale of short-term investments	13790
Total Cash Receipt	96740	157950
Total cash available	154690	190320
Less: Disbursements
Payment to suppliers	51950	86950
Wages	31790	41790
Administrative expenses	21790	24790
Selling expenses	16790	21790
Total disbursements	122320	175320
Excess (deficiency) of receipts over disbursements	32370	15000
Financing:
Borrowings	0	16950
Repayments	0	0
Cash balance, ending	32370	31950