Question

Sophisticates, Inc., a distributor of jewelry throughout California, is in the process of assembling a cash budget for the first quarter of 20x1. The following information has been extracted from the company’s accounting records:

•	All sales are on account. Sixty percent of customer accounts are collected in the month of sale; 30 percent are collected in the following month. Uncollectibles amounting to 10 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 20x0, will be recovered and that the recovery will be in January 20x1.
•	Sixty percent of the merchandise purchases are paid for in the month of purchase; the remaining 40 percent are paid for in the month after acquisition.
•	The December 31, 20x0, balance sheet disclosed the following selected figures: cash, $60,000; accounts receivable, $180,000; and accounts payable, $69,000.
•	Sophisticates, Inc., maintains a $60,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 9 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time.
•	Additional data:

	January			February			March
Sales revenue	$	480,000		$	570,000		$	585,000
Merchandise purchases		300,000			330,000			450,000
Cash operating costs		96,000			75,000			138,000
Proceeds from sale of equipment		—			—			18,000
1. Prepare a schedule that discloses the firm’s total cash collections for January through March. January February March Collection of A/R Collection of Jan Sales Collection of Feb Sales Collection of Mar Sales Sales of Equipment Total Cash Collections 2. Prepare a schedule that discloses the firm’s total cash disbursements for January through March. January February March Payments of A/P Payments of Jan Purchases Payments of Feb Purchases Payments of Mar Purchases Csah Operating Costs Total Cash Disbursements

3.

Prepare a schedule that discloses the firm’s cash needs, if any, for January through March. January February March Beginning Cash Balance Total Receipts Subtotal Less: Total Disbursements Cash excess (deficiency) before financing Financing: Borrowing to maintain $60,000 balance Loan principal repaid Loan interest paid Ending Cash Balance

Answer 1

Particulars	Jan	Feb	Mar
Sales Revenue	480000	570000	585000
(All Credit)
Particulars	Jan	Feb	Mar
Collection of A/R	36000	0	0		180000*20%
Collection of Jan Sales	288000	144000	0		60% in same month
Collection of Feb Sales	0	342000	171000		30% in following month
Collection of Mar Sales	0	0	351000		30% in following month
Sales of Equipment	0	0	18000		Given
Total Cash Collections	324000	486000	540000
Particulars	Jan	Feb	Mar
Purchases	300000	330000	450000
Disbursement Schedule:
	Jan	Feb	Mar
Payments of A/P	69000	0	0
Payments of Jan Purchases	180000	120000	0		60% in same month
Payments of Feb Purchases	0	198000	132000		40% in following month
Payments of Mar Purchases	0	0	270000
Cash Operating Costs	96000	75000	138000		Given
Total Cash Disbursements	345000	393000	540000
Cash Budget:
	January	February	March
Beginning Cash Balance	60000	60000	131842.5
Total Receipts	324000	486000	540000
Subtotal	384000	546000	671842.5
Less: Total Disbursements	345000	393000	540000
Cash excess (deficiency) before financing	39000	153000	131842.5		January	February	March
Financing:					60000-39000
Borrowing to maintain $60,000 balance	21000	0	0
Loan principal repaid	0	21000	0			21000
Loan interest paid	0	157.5	0			21000*9%*1/12
Ending Cash Balance	60000	131842.5	131842.5