Question

You have been asked to prepare a cash budget for Ashton company, a distributor of exercise equipment. The following information is available about the company's operation

A. The cash balance on December 1 will be $40,000
B. Actual sales for October and November and expected sales for December are as follows:

Cash sales:
                  Oct.      Nov.        Dec
             . 65000 70000.   83000

Sales on account:
                 Oct.           Nov.       Dec
             400000.   525000   600000

Sales on account are collected over a three month period for the following ration 20% collected in month following sale. The remaining 2% is uncllectible.

C. Purchase of inventory will total $280,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase with the balance   being paid for the following month. The accounts payable remaining from November's inventory purchases total $161,000 all of which will be paid in December.

D. Selling and administrative expenses are budgeted at $430,000 for December of this amount $50,000 is for depreciation

E. A new Web server for the marketing department costing $76,000 will be purchased for cash during December and dividend totaling $9,000 will be paid during the month.

F. The company must maintain a minimum cash balance of $20,000. An open line of credit is available from the companys bank to bolster the cash positions needed

Required:

1. Prepare a schedule of expected cash collections for December.
2. Prepared a schedule of expected cash disbursements for materials during December to supplies for inventory purchases.

3. Prepare a cash budget for December. Indicate the financing section any borrowing/replacement that will be needed during the month.

Answer 1

Solution 1:
Computation of expected cash collection for december - Ashton company
Particulars	Amount
Cash Sales	$83,000.00
Collection of credit sales from October ($400,000*18%)	$72,000.00
Collection of credit sales from November ($525,000*60%)	$315,000.00
Collection of credit sales from December ($600,000*20%)	$120,000.00
Total Expected Cash Collection	$590,000.00
Solution 2:
Computation of expected cash disbursement for merchandise purchase in december - Ashton company
Particulars	Amount
Payment to suppliers:
November purchases	$161,000.00
December Purchases ($280,000*30%)	$84,000.00
Total Cash payments	$245,000.00
Solution 3:
Cash Budget for December - Ashton company
Particulars	Amount
Beginning cash balance	$40,000.00
Add: Cash collection from customers	$590,000.00
Total cash available	$630,000.00
Less: Cash disbursements:
Payments to supplier for inventory	$245,000.00
Selling and administrative expenses	$380,000.00
New web server	$76,000.00
Dividend payments	$9,000.00
Total cash disbursements	$710,000.00
Excess (Deficiency) of cash available over disbursements	-$80,000.00
Financing:
Borrowings	$100,000.00
Repayments	$0.00
Interest	$0.00
Total financing	$100,000.00
Ending Cash balance	$20,000.00