Question

Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

1. Sales are budgeted to be $154,000. About 85% of sales is cash; the remainder is on account.
2. La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
3. Food and supplies purchases, all on account, are expected to be $113,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
4. Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
5. Utilities average $5,950 per month. Rent on the building is $4,100 per month.
6. Insurance is paid quarterly; the next payment of $1,500 is due in October.
7. September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
8. The cash balance on October 1 is $2,147.

Required:

If required, round your answers to the nearest dollar.

1. Calculate the cash receipts expected in October.
$

2. Calculate the cash needed in October to pay for food purchases.
$

3. Prepare a cash budget for the month of October.

La Famiglia Pizzeria
Cash budget
For the month of October
Beginning balance	$
Cash receipts
Cash available	$
Less:
Payments for food and supplies purchases	$
Owners' draw
Workers' wages
Utilities
Rent
Insurance
Total disbursements	$
Ending balance	$

Answer 1

SOLUTION

1. Schedule of cash receipts-

	September	October
Expected sales	181,500	154,000
Cash sales	85%	85%
Cash sales in dollar (A)	154,275	130,900
Credit sales	27,225	23,100
Collection of September Credit sales (27,225*28%) (B)		7,623
Collection of October Credit sales (23,100*70%) (C)		16,170
Total collection in October (A+B+C)		154,693

2. Schedule of cash payment-

	September	October
Expected purchases	130,000	113,000
Cash purchase	25%	25%
Cash purchase in dollars	32,500	28,250
Credit purchases	97,500	84,750
Payment from September month purchase		97,500
Total payments in October		125,750

3. Cash budget-

Particulars	Amount ($)	Amount ($)
Beginning balance	2,147
Cash receipts	154,693
Cash available (A)		156,840
Less: Cash disbursements:
Payments for food and supplies purchases	125,750
Owners' draw	6,000
Workers' wages	7,300
Utilities	5,950
Rent	4,100
Insurance	1,500
Total disbursements (B)		150,600
Ending balance (A-B)		6,240