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 $46,000.
b.	Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	78,200	$	77,600	$	95,000
Sales on account		460,000		534,000		606,000

   

	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 $352,000 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 $209,000, all of which will be paid in December.
d.	Selling and administrative expenses are budgeted at $505,000 for December. Of this amount, $60,700 is for depreciation.
e.	A new web server for the Marketing Department costing $102,000 will be purchased for cash during December, and dividends totaling $16,500 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.

Required:
1.	Prepare a schedule of expected cash collections for December.

  

  

2.	Prepare a schedule of expected cash disbursements for merchandise purchases for December.

  

  

3.	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.

  

Answer 1

1) Cash Collection in December :-

Particulars	Amount($)
December Cash Sales	95000
Collections on Account :-
October Sales ($460000*18%)	82800
November Sales ($534000*60%)	320400
December Sales ($606000*20%)	121200
Total Cash Collections	619400

2) Payment to Suppliers :-

Particulars	Amount($)
Purchase in November	209000
Purchase in December ($352000*30%)	105600
Total Cash Disbursement in December	314600

3) Cash Budget :-

Particulars	Amount($)	Amount($)
Beginning Cash Balance		46000
Add : Cash Collections :-
Cash Collection during December	619400
Total Cash Collections	619400	619400
Total Cash Available		665400
Less : Cash Disbursements :-
Cash Payments for Purchases	314600
Payment for selling and administrative Exp.($505000-$60700)	444300
Purchase of New web server	102000
Dividend Paid	16500
Total Cash Disbursement	877400	(877400)
Excess/(Deficiency) of cash available over cash disbursements		(212000)
Financing Section :-
Borrowings	232000
Repayments	0
Interest	0
Total Financing	232000	232000
Ending Cash Balance		20000