Question

Sales are 65% cash and 35% on credit. All credit sales are collected in the month following the sale. The March 31 balance sheet includes balances of $12,700 in cash, $12,700 in accounts receivable, $11,000 in accounts payable, and a $2,700 balance in loans payable. A minimum cash balance of $12,700 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 2% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and include sales commissions (5% of sales), shipping (2% of sales), office salaries ($3,700 per month), and rent ($5,700 per month).

April May June

Sales........................................... 31,300 40,700 24,700

Cash payments for merchandise 21,600 16,100 16,500

Prepare a cash budget for each of the months of April, May, and June. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Answer 1

Solution

Cash Budget
for April, May and June
	April	May	June
Beginning Cash Balance	$          12,700	$           12,700	$           18,803
Cash sales	$          20,345	$           26,455	$           16,055
Collection on account	$          12,700	$           10,955	$           14,245
Total Cash Available	$          45,745	$           50,110	$           49,103
Cash Payments For
Merchandise	$          21,600	$           16,100	$           16,500
Sales Commission	$             1,565	$             2,035	$             1,235
shipping	$                626	$                 814	$                 494
office salaries	$             3,700	$             3,700	$             3,700
Rent	$             5,700	$             5,700	$             5,700
Interest on loan	$                   54	$                   58	$                    -
Total Cash Payments	$          33,245	$           28,407	$           27,629
Preliminary Cash Balance	$          12,500	$           21,703	$           21,474
Additional loan (loan repayment)	$                200	$           (2,900)
Ending Cash Balance	$          12,700	$           18,803	$           21,474
Loan Balance
Loan Balance-Beginning of the month	$             2,700	$             2,900	$                    -
Additional Loan (Loan Repayment)	$                200	$           (2,900)	$                    -
Loan Balance End of Month	$             2,900	$                    -	$                    -

Working

Cash receipts from sales
	April	May	June
Total Sales	$ 31,300	$ 40,700	$ 24,700
Cash Sales	$ 20,345	$ 26,455	$ 16,055
Collection for Previous month	$ 12,700	$ 10,955	$ 14,245