Question

Jim Corp. has requested a cash budget for July and August. The following information has been gathered:

       a.   Cash balance as of July 1: $35,000.

       b.   Actual and forecasted sales are as follows:

                                               May                 June                July               August

Cash sales......................       $25,000          $ 30,000          $ 40,000          $ 50,000

Credit sales....................        60,000            80,000           100,000           110,000

Total.............................       $85,000          $110,000          $140,000          $160,000

       c.   Credit sales are collected 40% in the month of the sale, 35% in the month following the sale, and 25% in the second month following the sale.

       d.   Inventory purchases average 55% of sales. Of these purchases, 65% are paid for in the month of the purchase, with the remainder paid in the following month.

       e.   Operating expenses are paid in the month incurred. Expenses include $2,500 in rent, 6,000 in salaries, and $750 in utilities and miscellaneous expenses.

       Required:

1. Prepare a cash budget for July and August

Answer 1

$ Cash collections Credit Sales Cash sales Collection of May credit sales Collection of June credit sales $ 80,000 Collection of July credit sales $ 100,000 Collection of August credit sales $ 110,000 Total cash collections $ $ $ $ July 40,000 15,000 28,000 40,000 Workings August July August 50,000 ($ 60,000 * 25%) 20,000 ($ 80,000 * 35%) ($ 80,000 * 25%) 35,000 ($ 100,000 * 40%) ($ 100,000 * 35%) 44,000 ($ 110,000 * 40%) 149,000 $ $ $ $ $ 123,000 Workings June July August Cash payments June $ 110,000 $ 60,500 Total sales Inventory purchases 65% in the month of purchase 35% in the following month Total cash collections $ $ $ $ $ July 140,000 77,000 50,050 21,175 71,225 August $ 160,000 $ 88,000 $ 57,200 $ 26,950 $ 84,150 $ 110,000 * 55%) ($ 140,000 * 55%) ($ 160,000 * 55%) ($ 77,000 * 65%) ($ 88,000 * 65%) ($ 60,500 * 35%) ($ 77,000 * 35%)

JIM CORP. Cash Budget For The Month of July and August July August Beginning cash balance $ 35,000 $ 77,525 Add: Cash collections Collections from customers $ 123,000 $ 149,000 Total cash available $ 158,000 $ 226,525 Less: Cash disbursements Payments for purchases 71,225 $ 84,150 Rent $ 2,500 $ 2,500 Salaries 6,000 $ 6,000 Utilities & miscellaneous expense $ 750 $ 750 Total cash disbursements 80,475 $ 93,400 Ending cash balance $ 77,525 $ 133,125