Question

Farley Company has budgeted sales revenues as follows:

	June	July	August
Cash Sales		255,000	195,000
Credit Sales	135,000	145,000	90,000
Total Sales	135,000	400,000	285,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:

June	$300,000
July	$250,000
August	$105,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each month, (b) dividends of $103,000 will be paid in July, and (c) purchase of equipment in August for $30,000 cash.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000.

Answer 1

• All working forms part of the answer
• Cash Budget For July and August

	July	August	Total
Beginning cash	$          50,000.00	$        50,000.00	$        50,000.00
Add: Cash Sales	$       2,55,000.00	$     1,95,000.00	$     4,50,000.00
Add: Collected from receivables	$       1,41,000.00	$     1,12,000.00	$     2,53,000.00
Total cash Available	$       4,46,000.00	$     3,57,000.00	$     7,53,000.00
Cash Disbursements:
Payment for purchases	$       2,75,000.00	$     1,77,500.00	$     4,52,500.00
Selling & administrative expenses	$          48,000.00	$        48,000.00	$        96,000.00
Dividends	$       1,03,000.00		$     1,03,000.00
Equipment purchased		$        30,000.00	$        30,000.00
Total disbursement	$       4,26,000.00	$     2,55,500.00	$     6,81,500.00
Excess (shortage) of cash available over disbursement	$          20,000.00	$     1,01,500.00	$        71,500.00
Financing:
Borrowing	$          30,000.00		$        30,000.00
Repayments		$      (30,000.00)	$      (30,000.00)
Total Financing	$          30,000.00	$      (30,000.00)	$                        -
Ending Cash Balance	$          50,000.00	$        71,500.00	$        71,500.00