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: Budgeted Sales Cash payments for merchandise July $62,100 44,200 August $81,900 31,700 September $49,900 32,500 Sales are 15% cash and 85% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $14,200 in cash; $52,500 in accounts receivable; $6,400 in accounts payable; and a $3,900 balance in loans payable. A minimum cash balance of $13,900 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 2% 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 (5% of sales), office salaries ($5,900 per month), and rent ($8,400 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

Cash Receipts:

Particulars			July	August	September
Sales			$ 62,100.00	$ 81,900.00	$ 49,900.00
Cash sales (15%)		(a)	$   9,315.00	$ 12,285.00	$   7,485.00
Credit sales (balance)			$ 52,785.00	$ 69,615.00	$ 42,415.00
Collection for the month of:
June			$ 52,500.00
July				$ 52,785.00
August					$ 69,615.00
Credit sales collections		(b)	$ 52,500.00	$ 52,785.00	$ 69,615.00
Total collections		(a+b)	$ 61,815.00	$ 65,070.00	$ 77,100.00

Cash Budget:

				July	August	September
Beginning cash balance				$ 14,200.00	$ 13,900.00	$   25,337.64
Cash sales				$   9,315.00	$ 12,285.00	$     7,485.00
Collections on account				$ 52,500.00	$ 52,785.00	$   69,615.00
Total cash available				$ 76,015.00	$ 78,970.00	$ 102,437.64
Cash payments for:
Merchandise				$ 44,200.00	$ 31,700.00	$   32,500.00
Sales commissions				$   3,105.00	$   4,095.00	$     2,495.00
Office salaries				$   5,900.00	$   5,900.00	$     5,900.00
Rent				$   8,400.00	$   8,400.00	$     8,400.00
Interest on bank loan				$        78.00	$        69.36	$                 -
Total cash payments				$ 61,683.00	$ 50,164.36	$   49,295.00
Preliminary cash balance				$ 14,332.00	$ 28,805.64	$   53,142.64
Additional loan (loan repayment)				$     (432.00)	$ (3,468.00)	$                 -
Ending cash balance				$ 13,900.00	$ 25,337.64	$   53,142.64
Loan balance - Beginning of month				$   3,900.00	$   3,468.00	$                 -
Additional loan (loan repayment)				$     (432.00)	$ (3,468.00)
Loan balance - End of month				$   3,468.00	$               -

Is this okay?