Question

Problem 8-28 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-7, LO8-8] pothes Westex Products is a wholesale distributor of industrial cleaning products. When the treasurer of Westex Products approached the company's bank late in the current year seeking short-term financing, he was told that money was very tight and that any borrowing over the next year would have to be supported by a detailed statement of cash collections and disbursements. The treasurer also was told that it would be very helpful to the bank if borrowers would indicate the quarters in which they would be needing funds, as well as the amounts that would be needed, and the quarters in which repayments could be made. Because the treasurer is unsure as to the particular quarters in which bank financing will be needed, he has assembled the following information to assist in preparing a detailed cash budget: a Budgeted sales and merchandise purchases for next year, as well as actual sales and purchases for the last quarter of the current year, are: Merchandise Purchases References Sales $ 200,000 $ 126,000 Current Year! Fourth quarter actual Next year! First quarter estimated Second quarter estimated Third quarter stated Fourth quarter estimated $ $ $ $ 300, 400.000 500,000 200,000 $106.000 $ 246.000 $ 305,000 $126,000 b. All sales are on account. The company normally collects 65% of a quarter's sales before the quarter ends and another 33% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the current year's fourth- quarter actual data. c. Eighty percent of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid for in the following quarter d. Selling and administrative expenses for next year are budgeted at $50,000 per quarter plus 15% of sales. Of the fixed amount $20,000 each quarter is depreciation e. The company will pay $10,000 in dividends each quarter f Land purchases of $75,000 will be made in the second quarter, and purchases of $48,000 will be made in the third quarter. These purchases will be for cash. g. The Cash account contained $10,000 at the end of the current year. The treasurer feels that this represents a minimum balance that must be maintained. h. The company's bank allows borrowing in increments of $1,000 at the beginning of each quarter, up to a total loan balance of $100,000. The interest rate on these loans is 25% per quarter and for simplicity we will assume that interest is not compounded The company would, as far as it is able, repay the loan plus accumulated interest at the end of the year. 1. At present the company has no loans outstanding Required:

Answer 1

Cash budget is statement prepared for cash inflow and cash outflow occurred during the specific period of time. The cash budget helps to know the ending balance of cash at particular period .The cash budget is monthly, quarterly, semi - annually and annually. his is current assets used for expenses of the organisation.

1 The expected cash collected by quarter and in total for next year is calcuated below:- - First second third Fourth year 656 collected before 195000 260,000 325000 130,000 910,000 the quarter ends 33% collected in 66000 99000132000 165,000 462000 folloeing no quarter The expected cash_261000359000 457000 295000 1372000 collected by quarte, 27 The expected cash disbursement for merchandise purchases by quarter and in total for bext year is calculated below: - First second third Fortb Year 80% of a quarter's 148,800.196800 244000 109800 690,400 merchandise purchase ne paid within the quarter 20*% of a merchandise 252001 37,200 49,200 61000 1172600 parehare one paid in following the quarter to cash disbursement 174000 234000 293,200) 618001 863000 2) The expected cash disbursement for selling and administrative expenses by quarter and in total for next year is calcuated belowin o b Erst second third Fath year. I rollin & distribution 50,000/50000 50000 50,000/200,000 ] Bepenses (Fixed less: Depreciation 20000 20,000/20,000 20,000 80,000 20000 39000 39000 39000 120,000 15% of sales 45,000 60,6oo 75,000 30000 210.000 Total ash disbursement 75000 99.000 10500G 60,000 336,000 of selling and distribution mote: Depreciation is deducted because it is A non cash item. 2ooo tastoor

The cash budget by quarter and in total for next year is calculated below:- First second third Feth year Beging cash Balance 10,000 12000 11,200 12000 45,200 Adds collection 261000359000457000295000 137 2000 from customers Total dash Ayailable 271,000 3710004 68.200 307000 1417,200 Lessi disbursements mecblondise 174000 234000 293,200 161800 | 863000 purchases Selling and 75000 90,000 105000 60,000 330,000 administrative exp. Dividends 10.000 10,000 19,000 | 10,000 40,000 Lond - 75000 48000 123.000 zote hash 25900038200456200231800 1356000, disbeassement 1409000 Erless defficiency 12000 (38000) 12000 175,200|61200 et cash available for disbursement Financing malvina Bomo ung - 48000 48000 Repayment, 1649200 (49,200) Interest 2.57.) -_ 1200 1200 Totod financing Ending cash 12000 11,200 112000 26000 61,200 a balance