Question

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LOS 17 Cash receipts, disbursements and summary budgets Veronica's Cakes cooks and distributes cakes for every imaginable occasion. Veronica started the company in her house three years ago and has been surprised at her success. She is considering expanding her business and needs to prepare cash budgeting information to present to Westpac Bank to secure a loan. Veronica is not an accountant, so she has asked you to help her to prepare the necessary reports Veronica's Cakes began the month with a bank balance of $20000. The budgeted sales for March to June are as follows: Cash sales Sales on account Total sales March $28000 58000 $86000 April May June $33 000 $31000 $35 000 60 000 80000 100 000 $93 000 $111000 $135 000 Veronica has found that she generally collects payment for credit sales over a two-month period. Typically, 70 per cent is collected in the month of sale and the remainder is collected in the next month. Her policy is to purchase inventory each month equivalent to 60 per cent of that month's budgeted sales. She thinks this provides her sufficient inventory levels to manage unanticipated changes in demand. Veronica's Cakes pays for inventory purchases in the month following purchase. Selling and administrative expenses are budgeted to be 40 per cent of each month's sales. One-half of the selling and administrative expenses is accounted for by depreciation on Veronica's manufacturing equipment. The company purchased additional manufacturing equipment in April at a cost of $28000. Veronica does not receive a salary, but she does pay herself dividends as company performance allows. The first quarter of the year was very profitable, so Veronica paid herself a dividend of $17 800 in April. Veronica wants to maintain a minimum cash balance of $10000 and has established a line of credit

Answer 1

a.
Prepare cash receipts for April, May and June
	April	May	June
Cash sales	$33,000	$31,000	$35,000
Credit sales - 70% same month	$42,000	$56,000	$70,000
	60000*70%	80000*70%	100000*70%
Credit sales - 30% next month	$17,400	$18,000	$24,000
	58000*30%	60000*30%	80000*30%
Total cash receipts	$92,400	$105,000	$129,000
Purchases
	March	April	May	June
Purchases	51600	$55,800	$66,600	$81,000
	86000*60%	93000*60%	111000*60%	135000*60%
b.
Prepare cash disbursements budget for April, May and June
	April	May	June
Payment for purchases	$51,600	$55,800	$66,600
Selling and administrative expenses	$18,600	$22,200	$27,000
	(93000*40%)/2	(111000*40%)/2	(135000*40%)/2
Additional manufacturing equipment	$28,000
Dividend	$17,800
Total cash disbursements	$116,000	$78,000	$93,600
c
Summary of cash budget for April, May, June
	April	May	June
Total cash receipts	$92,400	$105,000	$129,000
Less: Cash disbursements	$116,000	$78,000	$93,600
Preliminary cash balance	-$23,600	$27,000	$35,400
Add: Beginning cash balance	$20,000	$10,000	$23,400
Line of credit obtained/repaid	$13,600	-$13,600
Ending cash balance	$10,000	$23,400	$58,800
Line of credit obtained in April	(23600-20000)+10000
Line of credit obtained in April	13600