Question

Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the process of assembling a cash budget for the first quarter of 20x1. The following information has been extracted from the company’s accounting records:

• All sales are on account. Sixty percent of customer accounts are collected in the month of sale; 35 percent are collected in the following month. Uncollectibles amounting to 5 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 20x0, will be recovered and that the recovery will be in January 20x1.
• Seventy percent of the merchandise purchases are paid for in the month of purchase; the remaining 30 percent are paid for in the month after acquisition.
• The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $65,000; accounts receivable, $185,000; and accounts payable, $70,000.
• Mary and Kay, Inc., maintains a $65,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 9 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time.
  • Additional data:

    	jan	feb	march
    sales revenue	$490,000	$580,000	$595,000
    merchandise purchases	310,000	340,000	460,000
    cash operatings costs	97,000	76,000	139,000
    proceeds from sale of equipment	-	-	19,000

    1.

    	jan	feb	march
    collection of accounts receivable
    collection of jan sales
    collection of feb sales
    collection of march sales
    sale of equipment
    total cash collections	$	$	$

    • 2

      	january	february	march
      payment of accounts payable
      payment of january purchases
      payment of feb purchases
      payment of march purchases
      cash operating costs
      total cash disbursements	$	$	$

      • 3

        	january	february	march
        beginning cash balance
        total receipts
        subtotal	$	$	$
        less: total disbursements
        Cash excess (deficiency) before financing	$	$	$
        Financing:
        Borrowing to maintain $65,000 balance
        Loan principal repaid
        Loan interest paid
        Ending cash balance	$	$	$

Answer 1

Schedule of Cash Collections
	January	February	March
Collection of Accounts Receivable	$             37,000
Collection of January Sales	$          2,94,000	$         1,71,500
Collection of February Sales		$         3,48,000	$         2,03,000
Collection of March Sales			$         3,57,000
Sale of Equipment			$            19,000
Total Cash Collections	$          3,31,000	$         5,19,500	$        5,79,000
Schedule of Cash Disbursements
	January	February	March
Payment of Accounts Payable	$             70,000
Payment of January Purchases	$          2,17,000	$             93,000
Payment of February Purchases		$         2,38,000	$         1,02,000
Payment of March Purchases			$         3,22,000
Cash Operating Costs	$             97,000	$             76,000	$         1,39,000
Total Cash Disbursements	$          3,84,000	$         4,07,000	$        5,63,000
Cash Budget
	January	February	March
Beginning Balance	$             65,000	$             65,000	$         1,23,705
Total Receipts	$          3,31,000	$         5,19,500	$         5,79,000
Total Cash Available	$          3,96,000	$         5,84,500	$         7,02,705
Less : Total Disbursements	$          3,84,000	$         4,07,000	$         5,63,000
Cash excess(deficiency)	$             12,000	$         1,77,500	$         1,39,705
Financing
Borrowings	$             53,000
Repayment		$           -53,000
Interest		$                 -795
Total Financing	$             53,000	$           -53,795	$                     -
Ending Balance	$             65,000	$         1,23,705	$        1,39,705