Question

Take Home Quiz 1 2 Cash Budget Due by Janet Wooster owns a retail store that sells new and used sporting equipment. Janet has requested a cash budget for October. After examining the records of the company, you find the following: a. Cash balance on October 1 is $1,960. b. Actual sales for August and September are as follows: August September Cash sales Credit sales Total sales $ 50,000 75,000 $125,000 $ 57,500 92.500 $150,000 c. Credit sales are collected over a three-month period: 20 percent in the month of sale, 65 percent in the second month, and 10 percent in the third month. The remaining sales are uncollectible. d. Inventory purchases average 80 percent of a month's total sales. Of those purchases, 75 percent are paid for in the month of purchase. The remaining 25 percent are paid for in the following month. e. Salaries and wages total $4,005 per month. f. Rent is $945 per month. g. Taxes to be paid in October are $3,750. h. Janet usually withdraws usually withdraws $3,000 each month as her salary. i. Advertising is $350 per month. Janet also tells you that she expects cash sales of $55,500 and credit sales of $80,000 for October. Required: Prepare a cash budget for October 2018. (You may use the cash budget format on the next page or write out your own.) Include supporting schedules for cash collections and cash payments. (For example, a supporting schedule could be a footnote clearly showing a calculation.)

Answer 1

Cash Budget For the Month of October, 2018 Beginning Cash Balance $ 1,960 Collections Cash Sales $ 55,500 Credit Sales (received on account) Current Month Sales $ 16,000 September credit sales $ 60,125 August Credit sales $ 7,500 Total Cash Available (A) $ 1,41,085 Disbursements Payments for Inventory purchases: October Purchases $ 81,300 September Purchases $ 30,000 Salaries and wages 4,005 Rent $ 945 Taxes 3,750 Owner Withdrawal $ 3,000 Advertising 350 Total Disbursements (B) $ 1,23,350 Ending Cash Balance (A-B) $ 17,735

Collections from Credit Sales Current Month Sales = Credit Sales for October x 20% = 80,000 x 20% = $ 16,000 September Credit Sales = Credit Sales for September x 65% = 92,500 x 65% = $ 60,125 August Credit Sales = Credit Sales for August x 10% = 75,000 x 10% = $ 7,500

Payments for Inventory Purchases October Purchases = (October Cash Sales + Credit Sales) x 80% = (55,500 + 80,000) x 80% = $ 1,08,400 Payment for October Purchases - October Purchases x 75% = 108,400 x 75% = $ 81,300 September Purchases = September Total Sales x 80% = 150,000 x 80% = $ 1,20,000 Payment for September Purchases = September Purchases x 25% = 120,000 x 25% = $ 30,000