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:

1. The cash balance on December 1 is $40,000.

2. Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	65,000	$	70,000	$	83,000
Sales on account	$	400,000	$	525,000	$	600,000

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.

3. Purchases of inventory will total $280,000 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 $161,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.

5. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month.

6. 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

ANSWER :-

(1)

Schedule of Expected Cash collections
December cash sales				83,000
Collections on account
October sales		(400000*18%)		72000
november sales		(525000*60%)		315000
december sales		(600000*20%)		120000
total cash collections				590,000

(2)

Schedule of Expected cash disbursement
Payments to Suppliers:
November purchases				161,000
December purchases		(280000*30%)		84000
total cash disbursement				245,000

(3)

Cash budget
Beginning cash balance		40,000
Add collections from customers		590,000
total cash available		630,000
less cash disbrsements
payments to suppliers for inventory	245,000
Selling and administrative expenses	380,000
New web server	76,000
dividends paid	9,000
total cash disbursements		710,000
Excess(deficiency) of cash available over disbursement		-80,000
Financing:
Borrowings		100,000
Repayments		0
interest		0
total financing		100,000
Ending cash balance		20,000

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