Question

Budgeting

Go Car Repair Ltd intends to prepare a cash budget for December and January. The actual revenue for October and November and projected revenue for December and January are outlined below: Actual Budgeted October November December January Cash Sales 63,000 61,000 72,000 60,000 Credit Sales 90,000 110,000 130,000 80,000 Total Sales S153,000 $171.000 S202,000 S140,000 The cash balance at the end of November is $60,000. • Analysis of records has shown that credit sales are collected over a three-month period, with 50% collected in the month of the sale, 40% in the next month, and the remainder in the following month. • Projected expenditure during December and January is as follows: • Selling and administrative expenses are budgeted to be $88,000 each month. A new car hoist will be purchased for $100,000, with a $20,000 cash payment in December and the balance to be paid in March. • The owner wants to maintain a minimum cash balance of $60,000. • As more customers will want their vehicles serviced prior to Christmas, the company will need more supplies. Therefore, an order has been placed for $60,000 of inventory. This will arrive in late November and be paid in December. Required: 1. Prepare a schedule showing receipts from customers for credit sales in December and January. (6 marks) 2. Prepare a cash budget for December and January by using the template below. (22 marks) Total Go CAR REPAIR Ltd Cash budget for two months ended 31 January Decembe January r ANTICIPATED RECEIPTS Receipts from debtors Cash sales Total receipts ANTICIPATED PAYMENTS Selling and administration Car hoist Inventory consumables Total payments Excess (deficit) receipts over payments Bank balance at the beginning of the month Bank balance at the end of the month

Answer 1

Schedule of Cash Collections for Credit Sales
	December	January	Total
Collections from October Sales	$          9,000		$            9,000
Collections from November Sales	$        44,000	$         11,000	$         55,000
Collections from December Sales	$        65,000	$         52,000	$       117,000
Collections from January Sales		$         40,000	$         40,000
Total	$      118,000	$       103,000	$       221,000

Cash Budget
	December	January	Total
Anticipated Receipts
Receipts from Debtors	$      118,000	$       103,000	$       221,000
Cash Sales	$        72,000	$         60,000	$       132,000
Total Receipts	$      190,000	$       163,000	$       353,000
Anticipated Payments
Selling and administration	$        88,000	$         88,000	$       176,000
Car Hoist	$        20,000		$         20,000
Inventory Consumables	$        60,000		$         60,000
Total Payments	$      168,000	$         88,000	$       256,000
Excess (Deficit)	$        22,000	$         75,000	$         97,000
Bank Balance at beginning	$        60,000	$         82,000	$         60,000
Bank Balance at ending	$        82,000	$       157,000	$       157,000

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