Cruises, Inc. has budgeted sales revenues as follows: August Credit sales Cash s

Question

Cruises, Inc. has budgeted sales revenues as follows: August Credit sales Cash sales Total sales 90,000 $125,000 195000 $285.000 135,000 Past experience indicates that 60% of the credit sales will be colected in the month of sale and the remaining 40% will be collected in the following moth Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase Budgeted inventory purchases are June July August $300,000 240,000 05,000 Other cash disbursements budgeted (a) selling and administrative expenses of $58,000 each month (b) dividends of $125,000 will be paid in July, and (e) purchase of equipment in August for $45,000 cash The company wishes to maintain a minimum cash balance of $65.000 at the end of each month. The company borrows 1 was $70,000 Assume that borrowed money in this case is for one month Instructions: Present the analysis in a table. Prepare a cash budget for the months of July and August Prepare separate schedules for expected collections from customers and expected payments for from the bank at 7 75% interest if to maintain the minimum cash balance Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July purchases of inventory

Explanation / Answer

Cash Budget

For July and August

Schedule of collections from customers (debtors)

Schedule of expected payment for purchase of inventory

July August Opening balance 70,000 65,000 Receipts:    Cash sales 255,000 195,000 Collections from customers(debtors) 129,000 104,000 Total (I) 454,000 364,000 Payments Purchases of inventory 270,000 172,500 Selling and administrative expenses 58,000 58,000 Payment of dividend 125,000 0 Purchase of equipment 0 45,000 Total (II) 453,000 275,500 Remaining cash balance ( I - II) 1,000 88,500 Bank borrowings required 64,000 0 Payment of interest on borrowings 0 413 Repayment of borrowing 0 23,087 Closing cash balance 65,000 65,000

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