Question

2 points dde en, Inc. has budgeted sales reveruess as follors Credit sales Cash sales Total sales July $125.000 255.000 $300.000 August S go.000 195.000 $285.000 Past experience indicates that 60% of the credit sales wil be collected in the month of sale and the remairing 40% will be collected in the following month. Purchases of iventory are 9l on credt arvd 0% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are. July August 240,000 105,000 Other cash disbursements budgeted: (a) selling and administrative expenses of $48.000 eachh month, (b) dividends of $103.000 will be paid in July, and (c) purchase of equipment in August for $90,000 cash. The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 6% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on Auqust 1 was $50,000. Assume that borrowed money in this case is for one month structions: 1. Calculate the expected cash receipts and cash payments for the month of August. 2. Prepare a cash budget for the month of August.

Answer 1

PART A
1.Expected cash receipts (B)=310500
2.Expected cash payments(D)=310500
PART B	Cash budget
	Particulars		August
	A)Opening balance		50000
	B)Cash receipts:
	1.Cash sales		195000
	2.credit sales collected during month		54000
			(90000*60%
	3.Credit sale for month of july collected in august(40%)		50000
	4.Loan taken for maintaing cash balance		11500
	Total cash receipts		310500
	C)Total cash available		360500
	(A+B)
	D)Payments
	1.purchases(50% current month)		52500
			(105000*50%)
	2.Purchases 50 % paid in next month(july purchases)		120000
			(240000*50%)
	3.Selling and administrative Expenses		48000
	4.Purchase of equipment(august)		90000
	5.Total payments		310500
	6.Closing balance		50000
	(C-D)

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