Question

Cruises, Inc. has budgeted sales revenues as follows:

	June	July	August	September
Credit sales ($)	135,000	125,000	$ 90,000	120,000
Cash sales ($)	90,000	255,000	195,000	175,000
Total sales ($)	225,000	380,000	285,000	295,000
Purchases ($)	300,000	240,000	205,000	185,000

  

Past experience indicates that 60% of the credit sales will be collected in the month of sale and 20% will be collected in the following month and the remaining 20% after two months. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. 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 and (d) sale of old furniture for $ 2,000 in September.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 6% interest 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. Assume that borrowed money, in this case, is for one month.

Instructions

Prepare a cash budget for the months of July, August, and September. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.

Please follow the format on the next page for answering this question

CRUISES, INC.

Cash Budget

For the Months of July, August, and September

July August September

Beginning cash balance                                                                                          

Add: Receipts

        Collections from customers                                                                            

        Cash sales                                                                                                      

        Total receipts                                                                                                  

Total available cash                                                                                                

Less: Disbursements

        Purchases                                                                                                       

        Selling and administrative expenses                                                               

        Dividends                                                                                                        

        Equipment purchase                                                                                                                  

        Total disbursements                                                                                       

Excess (deficiency) of available cash over disbursements                                  

Financing

        Borrowings                                                                                                      

        Repayments                                                                                     

Ending cash balance

Answer 1

Calculation of cash collection from debtors -

	june	July	August	September
Credit sale	135000	125000	90000	120000
60% sale	81000	75000	54000	72000
20% collected in following month		27000	25000	18000
20 % collected in 2nd month				27000
Total Cash collection from debtors		102000	79000	117000

2. Calculation of cash disbursement -

	june	July	August	September
purchases	300000	240000	205000	185000
Cash paid (50%)	150000	120000	102500	92500
in the following month		150000	120000	102500
Total Cash paid	150000	270000	222500	195000

3. Calculation of Cash budget -

	Cruises Inc.
	Cash Budget
		june	July	August	September	Remarks
	Beginning cash balance		50000	50000	50000	last month closing balance
add	Receipts
	Collection from customers		102000	79000	117000	from part 1
	Cash sales		255000	195000	175000	given in question
	Furniture sale				2000	given in question
	Total receipts		357000	274000	294000
	Total available cash		407000	324000	344000	beginning + total receipts
less	Disbursement
	purchase		270000	222500	195000	from part 2
	selling and administrative expenses		48000	48000	48000	given in question
	dividends		103000			given in question
	equipment purchase			30000		given in question
	Total disbusements		421000	300500	243000
	Excess (deficiency) of available cash over disbursement		-14000	23500	101000
	financing
	Borrowings		64000	26820	0
	repayments (principal + interest)		0	0	50545.9
	Interest @ 6%			320	454.1
	Ending Cash balance		50000	50000	50000

Please comment in case of further clarification required.