Question

Check my work During the last week of August, Oneida Company's owner approaches the bank for a $110,000 loan to be made on September 2 and repaid on November 30 with annual interest of 17%, for an interest cost of $4,675. The owner plans to increase the store's inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank's loan officer needs more information about Oneida's ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1, Oneida is expected to have a $4,000 cash balance, $138,600 of net accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow. September $ 230,000 225,000 October $ 435,000 210,000 November $ 450,000 196,000 Budgeted Figures* Sales Merchandise purchases Cash payments Payroll Rent Other cash expenses Repayment of bank loan Interest on the bank loan 19,600 10,000 34,400 22,050 10,000 30, 600 23,900 10,000 20, 150 110,000 4,675 *Operations began in August; August sales were $180,000 and purchases were $115,000. The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 23% of credit sales is collected in the month of the sale, 47% in the month following the sale, 19% in the second month, 7% in the third, and the remainder is uncollectible. Applying these percents to the August credit sales, for example, shows that $84,600 of the $180,000 will be collected in September, $34,200 in October, and $12,600 in November. All merchandise is purchased on credit; 40% of the balance is paid in the month following a purchase, and the remaining 60% is paid in the second month. For example, of the $115,000 August purchases, $46,000 will be paid in September and $69,000 in October Required: Prepare a cash budget for September, October, and November. (Round your final answers to the nearest whole dollar.)

Answer 1

Calculation of cash receipts from sales
			Collected in				Nov. 30
	Total sales	Uncollectible	August	September	October	November	Accounts receivable
Credit sales from:
August	$             180,000	$             7,200	$ 41,400	$      84,600	$    34,200	$    12,600
September	$             230,000			$      52,900	$ 108,100	$    43,700	$                         25,300
October	$             435,000				$ 100,050	$ 204,450	$                       130,500
November	$             450,000					$ 103,500	$                       346,500
Totals	$         1,295,000	$             7,200	$ 41,400	$    137,500	$ 242,350	$ 364,250	$                       502,300
Calculation of cash payments for merchandise
			Paid in				Nov. 30
	Total purchases		August	September	October	November	Accounts payable
Purchases from:
August	$             115,000			$      46,000	$    69,000
September	$             225,000				$    90,000	$ 135,000
October	$             210,000					$    84,000	$                       126,000
November	$             196,000						$                       196,000
Totals	$             746,000			$      46,000	$ 159,000	$ 219,000	$                       322,000

Cash budget:

ONEIDA COMPANY
Cash Budget
For September, October, and November
	September	October	November
Beginning cash balance	$         4,000	$ 141,500	$   162,200
Cash receipts:
Receipts from bank loan	$     110,000
Collection on accounts receivable	$     137,500	$ 242,350	$   364,250
Total cash available (A)	$     251,500	$ 383,850	$   526,450
Cash payments:
Payment on accounts payable	$       46,000	$ 159,000	$   219,000
Payroll	$       19,600	$    22,050	$     23,900
Rent	$       10,000	$    10,000	$     10,000
Other cash expenses	$       34,400	$    30,600	$     20,150
Repayment of bank loan			$   110,000
Interest on bank loan			$       4,675
Total cash payments (B)	$     110,000	$ 221,650	$   387,725
Ending cash balance (A) - (B)	$     141,500	$ 162,200	$   138,725

Explanations:

Given that

• For sales 23% collected in the month of sale, 47% collected in the following month of sale, 19% in the second month, 7% in the third month and 4% uncollectible.
• For purchases 40% to paid in the month of following purchase, 60% to be paid in the second month.

Allocated as per the above.

Note:

Nov.30 Accounts receivable = Sales - Total collections

Nov.30 Accounts payable = Purchases - Total payments