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 80 percent of their fees in the month the service is provided. In the month following service, Paul collects 15 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, 75 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 $15,400.

June 1 supplies on hand $4,200.

June 1 accounts receivable $8,700.

June 1 accounts payable $4,100.

Estimated sales for June, July, and August are $26,100, $39,200, and $41,900, respectively.

Sales during May were $24,500, and sales during April were $17,500.

Estimated purchases for June, July, and August are $9,600, $18,400, and $13,200, respectively.

Purchases in May were $5,300.

Required:
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:

Cash:
June 1 Balance:
Add: Total Cash Recipets
Less: Total Cash Payments
August 31 Balance:
Supplies Inventory:
25% of August Purchases:
Accounts Recievable:
20% of August Sales:
5% of July Sales:
Balance at August 31:
Accounts Payable:
50% of August Purchases:

Answer 1

1) Calculation of budgeted cash receipts for each month (Amounts in $)

Particulars	June	July	August
Cash receipts for the month of:
April (5% of $17,500 in June)	875	0	0
May (15% of $24,500 in June and 5% in July)	3,675	1,225	0
June (80% in June, 15% in July and 5% in August)	20,880	3,915	1,305
July (80% of $39,200 in July and 15% in August)	0	31,360	5,880
August (80% of $41,900 in August)	0	0	33,520
Total Cash Receipts	25,430	36,500	40,705

Total cash receipts for three months = $25,430+$36,500+$40,705 = $102,635

Calculation of Budgeted Cash Payments (Amounts in $)

Particulars	June	July	August
Payments for the month of:
May (50% of $5,300 in June)	2,650	0	0
June (50% of $9,600)	4,800	4,800	0
July (50% of $18,400)	0	9,200	9,200
August (50% of $13,200)	0	0	6,600
Estimated Cash Payments	7,450	14,000	15,800

Total Cash Payments for three months = $7,450+$14,000+$15,800 = $37,250

2) Cash Balance on August 31 = Beg bal June 1+Total Cash Receipts-Total Cash Payments

= $15,400+$102,635-$37,250 = $80,785

Supplies Inventory = 25% of August Purchases

= 25%*$13,200 = $3,300

Accounts Receivable Balance = 20% of August Sales+5% of July Sales

= ($41,900*20%)+($39,200*5%)

= $8,380+$1,960 = $10,340

Accounts Payable = 50% of August Purchases

= $13,200*50% = $6,600