Question

Problem 8-21 Schedules of Expected Cash Collections and Disbursements [LO8-2, LO8-4, LO8-8]

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 $43,200.

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

	October		November		December
Cash sales	$	76,200	$	70,800	$	84,400
Sales on account	$	520,000	$	527,000	$	649,000

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 $370,000 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 $193,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $433,000 for December. Of this amount, $99,800 is for depreciation.

A new web server for the Marketing Department costing $78,500 will be purchased for cash during December, and dividends totaling $18,500 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

Required schedules and budgets are as prepared below:

Ashton Company
Schedule of expected Cash collections
For the Month Ended December 31
	Month
Particulars	December
December cash Sales	84,400
Collection on acount:
October sales (520,000*18%)	93,600
November sales (527,000*60%)	316,200
December sales (649,000*20%)	129,800
Total collections	624,000
Ashton Company
Schedule of expected Cash disbursement
For the Month Ended December 31
	Month
Particulars	December
Payment to suppliers
November Purchases	193,000
December Purchases (370,000*30%)	111,000
Total cash payments	304,000
Ashton Company
Cash Budget
For the Month Ended December 31
	Month
Particulars	December
Beginning Cash balance	43,200
Add: Budgeted Cash receipts	624,000
cash available for use	667,200
Less: cash Disbursements
Purchase for Inventory	304,000
Selling and administrative expenses (433,000-99,800)	333,200
New Web Server	78,500
Dividend paid	18,500
Total disbursement	734,200
Cash surplus/Deficit	-67,000
Financing
Borrowing	87,000
Repayment
Interest
Net cash from Financing	87,000
Budgeted ending cash balance	20,000