Question

Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. ThRequired: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. Qu2. Prepare a cash budget, by month and in total, for the third quarter. (Cash deficiency, repayments and interest should be i

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Answer #1
1)
Herbal Care Corp.
Schedule of Expected Cash Collections
July August September Quarter
From accounts receivable:
   May sales ($190,000*3/100) $5,700 $5,700
   June sales ($230,000*70/100); ($230,000*3/100) $161,000 $6,900 $167,900
From budgeted sales:
   July sales ($350,000*25/100); ($350,000*70/100); ($350,000*3/100) $87,500 $245,000 $10,500 $343,000
   August sales ($570,000*25/100); ($570,000*70/100) $142,500 $399,000 $541,500
   September sales ($295,000*25/100) $73,750 $73,750
Total cash collections $254,200 $394,400 $483,250 $1,131,850
2)
Herbal Care Corp.
Cash Budget
July August September Quarter
Budgeted cash balance $42,500 $20,600 $41,900 $105,000
Add receipts: Collections from customers $254,200 $394,400 $483,250 $1,131,850
Total cash available (a) $296,700 $415,000 $525,150 $1,236,850
Less: Cash disbursements:
   Merchandise purchases ($138,000) ($210,000) ($342,000) ($690,000)
   Salaries and wages ($37,500) ($43,000) ($44,000) ($124,500)
   Advertising ($125,000) ($114,500) ($84,000) ($323,500)
   Rent payments ($5,600) ($5,600) ($5,600) ($16,800)
   Equipment purchases ($10,000) ($10,000)
Total Cash Disbursements (b) ($316,100) ($373,100) ($475,600) ($1,164,800)
   Excess (deficiency) of cash available over disbursements (c = a - b) ($19,400) $41,900 $49,550 $72,050
Financing:
   Borrowings $40,000 $0 $0 $40,000
   Repayments $0 $0 ($40,000) ($40,000)
   Interest $0 $0 ($1,200) ($1,200)
Total financing (d) $40,000 $0 ($41,200) ($1,200)
Ending cash balance (c + d) $20,600 $41,900 $8,350 $70,850
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