Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $58,600. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 73,200 $ 78,000 $ 92,000 $ 485,000 $ 568,000 $ 663,000 Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. c. Purchases of inventory will total $316,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $162,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation. e. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: 1. Calculate the expected cash collections for December. 2. Calculate the expected cash disbursements for merchandise purchases for December. 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

1. Expected cash collection for December.
				Amount ($)
Collection of October Credit Sales		87,300
(485,000 * 18%)
Collection of November Credit Sales		3,40,800
(568,000 * 60%)
December Cash Sales		92,000
Collection December Credit Sales		1,32,600
(663,000 * 20%)
	December total collection		6,52,700
2. Expected cash disbursement for December
Payment for December purchase		94,800
(316000*30%)
Payment pending till November		1,62,000
	December cash disbursement	2,56,800
3. Cash Budget (December)
Beginning Cash Balance		58,600
Add: Collection from Customers		6,52,700
Total Cash Available			7,11,300
Less: Cash Disbursements
Payments to supplier for inventory	2,56,800
Selling and admin Expenses	4,62,000		(514,000 - 52,000)
New web server		1,17,500
Dividend Paid		12,500	8,48,800
Excess/(deficiency) cash		-1,37,500
Financing
Borrowing			1,57,500
Repayment			-
Interest				-
Total Financing			1,57,500
Ending Cash Balance		20,000