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 $42,000.

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

	October		November		December
Cash sales	$	80,600	$	75,800	$	100,200
Sales on account	$	505,000	$	539,000	$	612,000

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 $378,000 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 $208,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $511,000 for December. Of this amount, $70,500 is for depreciation.

A new web server for the Marketing Department costing $99,500 will be purchased for cash during December, and dividends totaling $11,500 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.

1. Calculate the expected cash collections for December.

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

	Total cash collections Total cash disbursements

Calculate the expected cash disbursements for merchandise purchases for December.

Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Payments to suppliers for inventory Selling and administrative expenses New web server Dividends paid Total cash disbursements 0 Excess (deficiency) of cash available over disbursements 0 Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance $0

Answer 1

1)	Schedule of Expected Cash collections
	December cash sales					100,200
	Collections on account
	October sales		(505000*18%)			90900
	november sales		(539000*60%)			323400
	december sales		(612000*20%)			122400
	total cash collections					636,900	answer
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					208,000
	December purchases		(378000*30%)			113400
	total cash disbursement					321,400	answer
3)	Cash budget
	Beginning cash balance							42,000
	Add collections from customers							636,900
	total cash available							678,900
	less cash disbrsements
	payments to suppliers for inventory						321,400
	Selling and administrative expenses						440,500
	New web server						99,500
	dividends paid						11,500
	total cash disbursements							872,900
	Excess(deficiency) of cash available over disbursement							-194,000
	Financing:
	Borrowings							214,000
	Repayments							0
	interest							0
	total financing							214,000
	Ending cash balance							20,000