Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $58,600.

Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	73,200	$	78,000	$	92,000
Sales on account	$	485,000	$	568,000	$	663,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

Purchases of inventory will total $316,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $162,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation.

A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month.

The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

		Relevant Answer
	Particulars	December
	Cash Sales	92000
	Sales on Account	663000
	Total	755000
1	Cash Collection Budget:	Relevant Answer
	Particulars	December
	Sales on Account	663000
	In the Month(20%)	132600	(663000*20%)
	In the Following Sales Month(60%)	340800	(568000*60%)
	In the Following Sales 2 Month(18%)	87300	(485000*18%)
	Total Collections	560700
2	Cash Payment Budget:
	Particulars	December
	Purchases	316000
	In the Month(30%)	94800	(316000*30%)
	Last Month Purchase Payment	162000	Given'
	Total Payment for Purchases	256800
3	Cash Budget for the Quarter OND:
	Particulars	December
	Opening Cash Balance	58600
	Total Collections	560700
	Total Available Funds	619300
	Total Payment for Purchases	256800
	Equipment Acquisions	117500
	Dividends	12500
	S&A Exp Exl Depreciation	462000	514000-52000
	Total Payments	848800
	Gross Cash Balance	-229500
	Loan Taken	249500	(20000+229500)
	Closing Balance	20000
	Gross Cash Balance	-229500
	Required Closing Cash	20000
	Loan	249500