Question

Kellybrook Gallery is preparing its budgets for the quarter ending 31March. The following data is provided.

Actual Sales:                                     Forecast Sales:

November	December
$75,800	$102,500

January	February	March
$85,000	$60,000	$65,000

40% of all sales are on credit. Estimated collections are:

• 50% are collected in the month of sale, with a 3% discount,
• 30% in the month following sale, and
• 18% in the second month after sale.
• 2% will be written-off as Bad Debts
• Purchases are estimated at 60% of budgeted sales for the following month.
• 80% of these purchases are paid in the month of purchase and a 2% discount is received;
• 20% of purchases are paid in the following month.

Budgeted cash expenses in January are as follows:

Advertising	$500
Salaries/Wages	$8,000
Rent	$3,740
Interest on Mortgage	$475
General Expenses	$2,400

Salaries and wages will increase by 8% as of 1 February. Other cash expenses will remain the same for February and March.

Drawings by the owner amount to $7,000 per month.

The net GST Payable for the December quarter is $4,800. This amount is to be paid by the end of January.

Then Bank account balance at 1 January is $7,400.

Required: Prepare a cash budget for the months of January, February and March.

Answer 1

Workings