Question

Exercise 20-32A Merchandising: Cash budget LO P4 

Kelsey is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for merchandise for the next three months follow:

Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $12,000 in cash; $45,000 in accounts receivable; $4,500 in accounts payable; and a $2,000 balance in loans payable. A minimum cash balance of $12,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% 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 consist of sales commissions (10% of sales), office salaries ($4,000 per month), and rent ($6,500 per month).

 (1) Prepare a cash receipts budget for July, August, and September 

 (2) Prepare a cash budget for each of the months of July, August, and September.

Answer 1

			July	August	September
Beginning cash balance			$ 12,000.00	$ 12,000.00	$ 25,565.00
Cash sales			$ 12,800.00	$ 16,000.00	$    9,600.00
Collection on account			$ 45,000.00	$ 51,200.00	$ 64,000.00
Total cash available			$ 69,800.00	$ 79,200.00	$ 99,165.00
Cash payments for:
Merchandise			$ 40,400.00	$ 33,600.00	$ 34,400.00
Sales commissions			$   6,400.00	$    8,000.00	$    4,800.00
Office salaries			$   4,000.00	$    4,000.00	$    4,000.00
Rent			$   6,500.00	$    6,500.00	$    6,500.00
Interest on Bank loan			$        20.00	$          15.00	$                -
Total cash payment			$ 57,320.00	$ 52,115.00	$ 49,700.00
Preliminary cash balance			$ 12,480.00	$ 27,085.00	$ 49,465.00
Additional loan (loan repayment)			$     (480.00)	$   (1,520.00)	$                -
Ending cash balance			$ 12,000.00	$ 25,565.00	$ 49,465.00
Loan Balance
Beginning of month			$   2,000.00	$    1,520.00	$                -
Additional loan (loan repayment)			$     (480.00)	$   (1,520.00)	$                -
End of month			$   1,520.00	$                -	$                -

Workings:

Computation of sales commissions
Particulars		July	August	September
Sales		$ 64,000.00	$ 80,000.00	$ 48,000.00
Commissions (10%)		$   6,400.00	$   8,000.00	$   4,800.00
Interest of loan for August =			$ 1520 x 1%
		=	$        15.20
		or,	$        15.00

Is this correct?