Question

Prepare a cash budget, properly labeled and in good accounting order, for October based on the following:

Forecast sales

July                 $150,000           Credit sales are 40% of total sales and are collected

August           $170,000            as follows: 20% one month after the sale, 30%

Sept.              $180,000           two months after the sale and 50% three months

Oct                 $190,000           after the sale

Accounts payable are paid as follows: 70% one month after the purchase and 30% two months after the purchase.   Rent is $1,500 per month and utilities are $700 per month.

In October, the firm will have an insurance payment due of $450.

Expected Accounts Payable

August                     $170,000                  

Sept                         $175,000                  

Oct.                          $180,000

Beginning cash for October is $3,200

Answer 1

Calculation of sales amount collected in the month of October:

Particulars	July	August	September	October
Total Sales	150,000	170,000	180,000	190,000
Credit sales (Total sales*40%)	150000*40% = 60,000	170,000*40% = 68,000	180,000*40% = 72,000	190,000*40% = 76,000
Cash sales (Total sales*60%)				190,000*60% = 114,000
20% of credit sales collected after one month of sale (Credit sales*20%)		60,000*20% =12,000	68,000*20% =13,600	72,000*20% =14,400
30% of credit sales collected two months after the sale (credit sale*30%)			60,000*30% =18,000	68,000*30% =20,400
50% of credit sales collected 3 months after the sale (credit sales*50%)				60,000*50% = 30,000
Sales collected during October				=114,000+14,400+20,400+30,000 =178,800

Calculation of purchases paid during october:

Particulars	August	September	October
Purchases	170,000	175,000	180,000
70% of purchases will be paid one month after purchase (Purchases*70%)		170,000*70% =119,000	175,000*70% =122,500
30% of purchases will be paid 2 months after the purchases (Purchases*30%)			170,000*30% =51,000
Total purchases paid during October			122,500+51,000 =173,500

Preparation of Cash budget for the month of October:

Particulars	Amount
Beginning Cash for October (A)	3,200
Sales (B)	178,800
Purchases (C)	173,500
Rent (D)	1500
Utilities (E)	700
Insurance payments (F)	450
Ending cash balance for October (G) (A+B-C-D-E-F)	5,850