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 $51,400. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 71, 600 S 80,200 $ BB, 600 $ 120,000 $$80,000 $ 652,000 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 $287,000 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 $160,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $501,000 for December. Of this amount. $92,300 is for depreciation e. A new web server for the Marketing Department costing $113,500 will be purchased for cash during December, and dividends totaling $10,000 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) Calculation of Total cash collections for December

December cash sales	$88600
December credit sales to be collected (652000*20%)	130400
November credit sales to be collected (580000*60%)	348000
October credit sales to be collected (420000*18%)	75600
Total cash collections	$642600

2) Calculation of Cash disbursements for merchandise purchase

December purchases (287000*30%)	$86100
November purchases	160000
Cash disbursements for merchandise purchase	$246100

3)

Ashton Company
Cash Budget
For the Month of December
Beginning cash balance		$51400
Add: Collections from customers		642600
Total cash available		694000
Less: Cash disbursements:
Payments to suppliers for inventory	246100
Selling and administrative expenses (501000-92300)	408700
New web server	113500
Dividend paid	10000
Total cash disbursements		(778300)
Excess (deficiency) of cash available over disbursements		$(84300)
Financing:
Borrowings		104300
Repayment		-
Interest		-
Total financing		104300
Ending cash balance		$20000

Borrowings= Excess (deficiency) of cash available over disbursements+Ending cash balance

= $84300+20000= $104300