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 $55,400.
b.	Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	69,400	$	88,400	$	96,800
Sales on account		445,000		596,000		625,000

	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 $340,000 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 $173,500, all of which will be paid in December.
d.	Selling and administrative expenses are budgeted at $510,000 for December. Of this amount, $55,100 is for depreciation.
e.	A new web server for the Marketing Department costing $83,000 will be purchased for cash during December, and dividends totaling $18,500 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. 1. Prepare a schedule of expected cash collections for December.    Schedule of Expected Cash Collections December cash sales Collections on account: October sales November sales December sales Total cash collections Prepare a schedule of expected cash disbursements for merchandise purchases for December. Schedule of Expected Cash Disbursements Payments to suppliers: November purchases December purchases Total cash payments 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. Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance

Answer 1

Schedule of Expected Cash Collections
December cash sales	96,800
Collections on account :
October sales	80,100 (445,000*18%)
November sales	357,600 (596,000*60%)
December sales	125,000 (625,000*20%)
Total cash collections	659,500

Schedule of Expected Cash Disbursements
Payments to suppliers:
November purchases	173,500
December purchases	(340,000*30%)
Total cash payments	275,500

Ashton Company
Cash Budget
For the Month of December
Beginning cash balance	55,400
Add collections from customers	659,500
Total cash available		714,900
Less cash disbursements :
Payments to suppliers for inventory	275,500
Selling and administrative expenses (510,000-55,100)	454,900
New web server	83,000
Dividends paid	18,500
Total cash disbursements		(813,900)
Excess (deficiency) of cash available over disbursements		(117,000)
Financing:
Borrowings		137,000
Repayments
Interest
Total financing
Ending cash balance		20,000