Question

Fine Art Decor would like to request a line of credit from its bank and wants to estimate its cash needs for the month of September. The following sales forecasts have been made for 2018: July $500,000 August $400,000 September $300,000 October $200,000 November $100,000 Collection estimates were obtained from the credit collection department as follows: a. 20% collected within the month of sale b. 70% collected the first month following the sale c. 10% collected the second month following the sale.

Answer 1

Given Sales July August September October November Amount $500,000 $400,000 $300,000 $200,000 $100,000 Collection of Sales 20% 70% 10% within the month of sale first month following the sale second month following the sale Labour and Raw material General Administrative Expenses Lease Payment Depreciation Charge Corporate Tax rate Corporate Tax payment 50% of each month sale $30,000 $10,000 $20,000 40% Nil Solution Cash Budget for the Month of September AMOUNT PARTICULARS Receipt Sales collection within the month of sale = 300000 X 20% Sales collection in first month following the sale = 400000 X 70% Sales collection in second month following the sale = 500000 X 10% Total Receipt (A) $60,000 $280,000 $50,000 $390,000 Payment Labour and Raw material = 300000 X 50% General Administrative Expenses Lease Payment Total Payment (B) $150,000 $30,000 $10,000 $190,000 Net Surplus/(Deficit) (A-B) $200,000 Note: Depreciation is a non-cash expenditure and there were no payment of corporate tax, Hence ignored.