Question

Paul’s Pool Service provides pool cleaning, chemical application, and pool repairs for residential customers. Clients are billed weekly for services provided and usually pay 50 percent of their fees in the month the service is provided. In the month following service, Paul collects 40 percent of service fees. The final 10 percent is collected in the second month following service. Paul purchases his supplies on credit, and pays 50 percent in the month of purchase and the remaining 50 percent in the month following purchase. Of the supplies Paul purchases, 80 percent is used in the month of purchase, and the remainder is used in the month following purchase.

The following information is available for the months of June, July, and August, which are Paul’s busiest months:

• June 1 cash balance $14,900.
• June 1 supplies on hand $1,080.
• June 1 accounts receivable $13,630.
• June 1 accounts payable $2,700.
• Estimated sales for June, July, and August are $25,900, $38,900, and $41,100, respectively.
• Sales during May were $23,800, and sales during April were $17,300.
• Estimated purchases for June, July, and August are $9,700, $18,300, and $12,900, respectively.
• Purchases in May were $5,400.

Required:
1. Compute budgeted cash receipts and budgeted cash payments for each month.



2. Compute the balances necessary to prepare a budgeted balance sheet for August 31 for each of the following accounts:

Answer 1

Solution 1:

Computation of Budgeted cash receipts
Particulars	June	July	August
Collection for April Sales	$1,730.00
Collection for May Sales	$9,520.00	$2,380.00
Collection for June Sales	$12,950.00	$10,360.00	$2,590.00
Collection for July Sales		$19,450.00	$15,560.00
Collection for August Sales			$20,550.00
Budgeted cash receipts	$24,200.00	$32,190.00	$38,700.00

Computation of Budgeted cash Payments
Particulars	June	July	August
Accounts payable	$2,700.00
Payments for June Purchases	$4,850.00	$4,850.00
Payments for July Purchases		$9,150.00	$9,150.00
Payments for August Purchases			$6,450.00
Budgeted cash receipts	$7,550.00	$14,000.00	$15,600.00

Solution 2:

Balances for August 31
Budgeted Balance Sheet
Particulars	Amount
Cash:
June 1 Balance	$14,900.00
Add: Total cash receipts	$95,090.00
Less: Total cash payments	$37,150.00
August 31, balance	$72,840.00
Supplies Inventory
20% of August Purchase	$2,580.00
Accounts receivables:
40% of August Sales	$16,440.00
10% of July Sales	$3,890.00
Balance at August 31	$20,330.00
Accounts payable:
50% of August Purchase	$6,450.00