Question

2. Sushi House has budgeted sales revenue as follows:

	June	July	August
Credit Sales	$85,000	$80,000	$72,000
Cash Sales	14,000	25,000	32,000
Total Sales	$99,000	$105,000	$104,000

Past experience indicates that 70% of the credit sales will be collected in the month of sale and the remaining 30% will be collected in the following month. Purchases of inventory are all on credit and 60% is paid in the month of purchase and 40% in the month following purchase.

Budgeted inventory purchases are:

June	$45,000
July	43,000
August	40,000

Other cash disbursements budgeted: Selling and administration expenses of $14,000 each month, Dividends of $30,000 will be paid in July, and purchase of a computer in August for $3,000 cash. The company wishes to maintain a minimum cash balance of $20,000 at the end each month. The company borrows money from the bank at 9% interest if necessary to maintain the minimum cash balance and must be paid each month whether there is a loan repayment for not. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $25,000. All amounts borrowed during a month are borrowed on the first day. The loan balance as of July 1 is $26,000.

Instructions:

Prepare a cash budget for the month of July. Prepare separate schedules for expected collections from customers and expected payments for purchases as inventory.

PLEASE SHOW CALCULATIONS!!!

Answer 1

Schedule of Cash Collections:
Particulars	July
Cash Sales	25000
Collection of Credit Sales:
In the Month of Sales(70%)	56000	(80000*70%)
In the Following Month of Sales(30%)	25500	(85000*30%)
Total Collections	106500
Schedule of Cash Payment for Purchases:
Particulars	July
In the Month of Sales(60%)	25800	(43000*60%)
In the Following Month of Sales(40%)	18000	(45000*40%)
Payment for Purchases	43800
Cash Budget:
Particulars	July
Opening Cash Balance	25000
Add: Collections during the Month	106500	Taken from above
Total Available Cash	131500
Less:
Cash Payment for Purchases	43800	Taken from above
Selling & Administrative Ex	14000	Given
Dividend Payment	30000	Given
Interest Expense	195	(26000*9%*1/12)
Total Cash Payments	87995
Excess/(Deficit) Cash	43505
Less: Loan Repayment	23505	(Excess Cash above Minimum Balance used for Repayment)
Closing Cash Balance	20000