Question

Paul’s Pool Service provides pool cleaning, chemical application, and pool repairs for residential customers. Clients are billed weekly for services provided and usually pay 60 percent of their fees in the month the service is provided. In the month following service, Paul collects 35 percent of service fees. The final 5 percent is collected in the second month following service. Paul purchases his supplies on credit, and pays 50 percent in the month of purchase and the remaining 50 percent in the month following purchase. Of the supplies Paul purchases, 85 percent is used in the month of purchase, and the remainder is used in the month following purchase.

The following information is available for the months of June, July, and August, which are Paul’s busiest months:

• June 1 cash balance $14,600.
• June 1 supplies on hand $750.
• June 1 accounts receivable $9,600.
• June 1 accounts payable $2,500.
• Estimated sales for June, July, and August are $24,000, $36,000, and $38,000, respectively.
• Sales during May were $22,000, and sales during April were $16,000.
• Estimated purchases for June, July, and August are $9,000, $17,000, and $12,000, respectively.
• Purchases in May were $5,000.

Required: 1. Compute budgeted cash receipts and budgeted cash payments for each month. June July August Budgeted Cash Receipts Budgeted Cash Payments 2. Compute the balances necessary to prepare a budgeted balance sheet for August 31 for each of the following accounts: Balances for August 31 Budgeted Balance Sheet Cash June 1 Balance Add: Total Cash Receipts Less: Total Cash Payments August 31 Balance Supplies Inventory 15% of August Purchases Accounts Receivable 40% of August Sales 5% of July Sales Balance at August 31 Accounts Payable 50% of August Purchases

Answer 1

1.
Budgeted cash receipts :
	June	July	August
60% of current month's sales	14400	21600	22800
35% of sales made 1 month ago	7700	8400	12600
5% of sales made 2 months ago	800	1100	1200
Budgeted cash receipts	22900	31100	36600
Budgeted cash payments :
	June	July	August
50% of current month's purchases	4500	8500	6000
50% of puchase made 1 month ago	2500	4500	8500
Budgeted cash payments	7000	13000	14500

2.
Balances for August 31 Budgeted Balance Sheet
Cash
June 1 Balance	14600
Add: Total cash receitps ( 22900 + 31100 + 36600 )	90600
Less: Total cash payments ( 7000 + 13000 + 14500 )	34500
August 31 Balance	70700
Supplies inventory
15% of August Purchases ( 15% * 12000 )	1800
Accounts receivables
40% of August sales ( 40% * 38000 )	15200
5% of July sales ( 5% * 36000 )	1800
Balance at August 31	17000
Accounts payable
50% of August Purchases ( 50% * 12000 )	6000