Question

Cash Budget

Janet Wooster owns a retail store that sells new and used sporting equipment. Janet has requested a cash budget for October. After examining the records of the company, you find the following:

Cash balance on October 1 is $1,120.
Actual sales for August and September are as follows:
    August      September
Cash sales      $6,000        $4,500
Credit sales      58,000        62,000
Total sales      $64,000        $66,500

Credit sales are collected over a three-month period: 40 percent in the month of sale, 36 percent in the next month, and 22 percent in the second month after the sale. The remaining sales are uncollectible.
Inventory purchases average 70 percent of a month’s total sales. Of those purchases, 45 percent are paid for in the month of purchase. The remaining 55 percent are paid for in the following month.
Salaries and wages total $3,850 per month.
Rent is $3,150 per month.
Taxes to be paid in October are $1,635.
Janet usually withdraws $3,500 each month as her salary.
Advertising is $1,500 per month.
Other operating expenses total $3,800 per month.
Internet and telephone fees are $320 per month.
Janet tells you that she expects cash sales of $5,000 and credit sales of $64,000 for October. She likes to have $3,000 on hand at the end of the month and is concerned about the potential October ending balance.

Required:

Prepare a cash budget for October. Include supporting schedules for cash collections and cash payments. Round your intermediate computations and final answers to the nearest dollar.

Wooster Sporting Goods Store
Cash Budget
For the Month of October
Beginning cash balance   $fill in the blank 1
Collections:      
Cash sales   fill in the blank 2
Credit sales:      
October   fill in the blank 3
September   fill in the blank 4
August   fill in the blank 5
Total cash available       $fill in the blank 6
Disbursements:      
Inventory purchases:      
October   $fill in the blank 7
September   fill in the blank 8
Salaries and wages   fill in the blank 9
Rent   fill in the blank 10
Taxes   fill in the blank 11
Other operating expenses   fill in the blank 12
Owner withdrawal   fill in the blank 13
Advertising   fill in the blank 14
Internet and telephone   fill in the blank 15
fill in the blank 16
Ending cash balance       $fill in the blank 17

Answer 1

Ans:

For preparing cash budget for October we need to summarise the total sales and to find out cash sales and credit sales collections for the month, Inventory purchase payments for the month. Relevant schedules and working details are outlined below:

Calculation of monthly cash and credit sales & Purchases
		August ($)	September ($)	October ($)
Total Sales		64,000	66,500	69,000
Cash Sales		6,000	4,500	5,000
Credit Sales		58,000	62,000	64,000
Calculation of Inventory Purchases and Payment to suppliers
		August ($)	September ($)	October ($)
Total Inventory Purchases 70% of Total Sales	70%	NA	46,550	48,300
Payment to suppliers 45% for the current month Purchase	45%	NA	NA	21,735
Payment to suppliers 55% for the Previous month Purchase	55%	NA	NA	25,603
Total payment to Suppliers for the month		NA	NA	47,338

Calculation of Expected Cash Receipts from Credit Sales for October:
Description		October ($)
Collection from Account Receivable- Current Month	40%	25,600
Collection from Account Receivable- September Month	36%	22,320
Collection from Account Receivable- August Month	22%	12,760
Total Cash receipts for October		60,680

Cash budget for the month of October is as under:

Wooster Sporting Goods Store
Cash Budget for the month of October
Description	October ($)
Begining Cash Balance	1,120
Collections:
Cash Sales	5,000
Credit Sales:-
Credit Sales (Accounts Receivable)- October	25,600
Credit Sales (Accounts Receivable)- September	22,320
Credit Sales (Accounts Receivable)- August	12,760
Total Cash Available	66,800
Cash Disbursement for:
Inventory Suppliers for October	21,735
Inventory Suppliers for September	25,603
Salaries & Wages	3,850
Rent	3,150
Taxes	1,635
Janet (Owner) Salary	3,500
Advertising	1,500
Other Operating expenses	3,800
Internet & Telephone Charges	320
Total Payments	65,093
Available month End Cash Available	1,707

Note: Owners expected month end cash balance was 3000 and the available balance is 1707 only.