Question

Paul’s Pool Service provides pool cleaning, chemical application, and pool repairs for residential customers. Clients are billed weekly for services provided and usually pay 70 percent of their fees in the month the service is provided. In the month following service, Paul collects 25 percent of service fees. The final 5 percent is collected in the second month following service. Paul purchases his supplies on credit, and pays 50 percent in the month of purchase and the remaining 50 percent in the month following purchase. Of the supplies Paul purchases, 85 percent is used in the month of purchase, and the remainder is used in the month following purchase.

The following information is available for the months of June, July, and August, which are Paul’s busiest months:

• June 1 cash balance $17,000.
• June 1 supplies on hand $4,600.
• June 1 accounts receivable $9,600.
• June 1 accounts payable $4,500.
• Estimated sales for June, July, and August are $28,800, $43,200, and $46,000, respectively.
• Sales during May were $26,800, and sales during April were $19,200.
• Estimated purchases for June, July, and August are $10,600, $20,200, and $14,400, respectively.
• Purchases in May were $5,800.

1. Compute budgeted cash receipts and budgeted cash payments for each month.

2. Compute the balances necessary to prepare a budgeted balance sheet for August 31 for each of the following accounts

Answer 1

Solution 1:

Schedule of Budgeted Cash Receipts and Budgeted Cash Payments
Particulars	June	July	August	Total
Budgeted Cash Receipts
Cash received for Opening account Receivable	$8,260.00	$1,340.00		$9,600.00
Cash received for june Sale	$20,160.00	$7,200.00	$1,440.00	$28,800.00
Cash received for july Sale		$30,240.00	$10,800.00	$41,040.00
Cash received for August Sale			$32,200.00	$32,200.00
Total Budgeted Cash receipts	$28,420.00	$38,780.00	$44,440.00	$111,640.00
Budgeted Cash Payments
Cash payment for Account Payable	$4,500.00			$4,500.00
Cash Payment for June Purchases	$5,300.00	$5,300.00		$10,600.00
Cash Payment for July Purchases		$10,100.00	$10,100.00	$20,200.00
Cash Payment for August Purchases			$7,200.00	$7,200.00
Total Budgeted Cash Payments	$9,800.00	$15,400.00	$17,300.00	$42,500.00

Note: It is assumed that Cash receipt from Opening Account receivables in July is 5% of May Sale (i.e. $26800* 5% =$1340) and remaining Accounts receivables (i.e. $9600-$1340 = $8260) are received in June month.

Solution 2:

Balances for August 31 Budgeted Balance Sheet
Particulars	Amounts
Cash
June 1 Balance	$17,000.00
Add: Total Cash Receipts	$111,640.00
Less: Total cash payments	$42,500.00
August 31 Balance	$86,140.00
Supplies Inventory
15% of August Purchase	$2,160.00
Accounts Receivable
30% of August sale	$13,800.00
5% of July Sale	$2,160.00
Balance at August 31	$15,960.00
Accounts Payable
50% of August Purchases	$7,200.00