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:

1. Cash balance on October 1 is $1,110.
2. Actual sales for August and September are as follows:

   		August		September
   Cash sales		$6,000		$4,500
   Credit sales		59,000		62,000
   Total sales		$65,000		$66,500

3. 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.
4. 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.
5. Salaries and wages total $3,850 per month.
6. Rent is $3,150 per month.
7. Taxes to be paid in October are $1,635.
8. Janet usually withdraws $3,500 each month as her salary.
9. Advertising is $1,500 per month.
10. Other operating expenses total $3,800 per month.
11. 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	$
Collections:
Cash sales
Credit sales:
October
September
August
Total cash available		$
Disbursements:
Inventory purchases:
October	$
September
Salaries and wages
Rent
Taxes
Other operating expenses
Owner withdrawal
Advertising
Internet and telephone
Ending cash balance		$

Answer 1

Cash Budget for the month of October

Particulars	Amount
Collections
Cash at beginning of the month	1110
Cash Sales	5000
Credit Sales
October	25600
September	22320
August	12980
Total Cash Available (A)	67010
Disbursement
Inventory Purchases
October	21735
September	25603
Salaries and wages	3850
Rent	3150
Taxes	1635
Other operating Expenses	3800
Owner withdrawal	3500
Advertising	1500
Internet and telephone	320
Total Disbursal (B)	65093
Ending Cash Balance (A-B)	1917

Note1: Calculation of October Credit Sales ( 40 % of 64000) i. e 25600

September's credit sales received in October: (36 % of 62000) i.e 22320

Credit sale of August received in October :( 22% of 59000) i.e 12980

Note 2: October's Credit Purchase= . 70 x. 45 x 69000= 21735

September's credit purchase to be paid in October= .70 x. 55 x 66500 = 25603

Janet wants to have closing cash balance of $3000 closing cash balance as per cash budget is $1917 so the expected shortfall is $ 1083.