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:

The cash balance on December 1 is $51,800.

Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	80,000	$	82,000	$	89,200
Sales on account	$	470,000	$	503,000	$	638,000

- 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.

- Purchases of inventory will total $338,000 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 $163,000, all of which will be paid in December.

- Selling and administrative expenses are budgeted at $434,000 for December. Of this amount, $80,400 is for depreciation.

- A new web server for the Marketing Department costing $98,000 will be purchased for cash during December, and dividends totaling $16,000 will be paid during the month.

- The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the 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

EXPECTED CASH COLLECTIONS
			DEC
cash sales			89200
Oct month sale			84,600
Nov month sale			301,800
Dec month sale			127600
Total Cash Collections			603,200
EXPECTED CASH PAYMENTS
			Dec
Beginning Accounts payable			163,000
Dec month Purchase			101400
Total Cash disbursement			264,400
CASH BUDGET for the month ending Dec
				DEC
Beginning Cash balance				51800
Add: Cash collections from customers				603200
Total Cash available				655000
Less: Expected disbursement
Payment to suppliers				264400
Selling and admin expense				353600
(434000-80400)
Web server equipment purchased				98000
Dividend paid				16000
Total disbursement				732000
Shortage of cash balance				-77000
Financing:
Borrowing				97000
Repayment				0
Interest paid				0
Total financing				97000
Ending balance of cash				20,000