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 shown below. 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.

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

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 $ 61,000, 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 during December for merchandise purchases.

Answer 1

Required 1.

 

December cash sales............................................$ 83,000

Collections on account:

        October sales: $400,000 × 18%.................72,000

November sales: $525,000 × 60%..........315,000

        December sales: $600,000 × 20%..........120,000

Total cash collections.............................$590,000

 

Required 2.

Payments to suppliers:

       November purchases (accounts payable)....$161,000

       December purchases: $280,000 × 30%..............84,000

       Total cash payments.................................$245,000

Total cash collections = $590,000

Total cash payments = $245,000