The following information is budgeted for a company April May unes Sales Merchan

Question

The following information is budgeted for a company April May unes Sales Merchandise purchases Selling and Administrati 110,000 85,000 50,000 130,000 92,000 50,000 180,000 105,000 50,000 All sales are on credit 40% is collected the month of sale, 58% in the month following sale and the balance is uncollectible. Merchandise purchases are paid the month following purchase. Selling and administrative expense includes $ 8,000 of depreciation. All other selling and administrative expenses are paid as incurred. The company wants a cash balance of 15,000 at the end of the month and will borrow the amount needed in increments of thousand dollars. Borrowing occurs at the end of the month. The beginning balance of cash on May 1 was $ 24,000 a) Prepare a cash balance for May b) Prepare all journal entries for May

Explanation / Answer

Question a

Determination of Cash balance at the end of May:

Opening balance as on May 1 = $24,000

Add: Cash inflow from sales

April ($110,000 x 58%) $63,800

May ($130,000 x 40%) $52,000 = $115,800

Less: Cash outflow for purchases relating to April = ($85,000)

Less: Selling and administrative expenses = ($42,000)

May ($50,000 - $8,000)

(Depreciation is a non - cash expenditure)

Cash balance at end of the may = $12,800

Add: Borrowing ($15,000 - $12,800) = $2,200

(Since the minimum balance = $15,000)

Therefore cash balance at May end $15,000  

Journal entries:

Purchases a/c

To Accounts payable a/c

(Being purchases made in May)

$92,000

Accounts payable a/c

To cash a/c

(Being cash paid for the purchases made in April)

$85,000

Account receivable a/c

To Sales a/c

(Being sales made in May)

$130,000

Cash a/c ($63,800 + $52,000)

To Accounts receivable a/c

(being cash received for the sales made in April and May)

$115,800

Selling and administative expenses a/c

To cash a/c

(Being expenses incurred during may)

$42,000

Depreciation a/c

To Asset a/c or Accumulaed depreciation a/c

(being depreciation expenses recognised for may)

$8,000

Cash a/c

To Accounts payable a/c

(Being cash borrowed to maintain to minimum cash balance)

$2,200

Date General Journal Debit Credit

Purchases a/c

To Accounts payable a/c

(Being purchases made in May)

$92,000

$92,000

Accounts payable a/c

To cash a/c

(Being cash paid for the purchases made in April)

$85,000

$85,000

Account receivable a/c

To Sales a/c

(Being sales made in May)

$130,000

$130,000

Cash a/c ($63,800 + $52,000)

To Accounts receivable a/c

(being cash received for the sales made in April and May)

$115,800

$115,800

Selling and administative expenses a/c

To cash a/c

(Being expenses incurred during may)

$42,000

$42,000

Depreciation a/c

To Asset a/c or Accumulaed depreciation a/c

(being depreciation expenses recognised for may)

$8,000

$8,000 May 30

Cash a/c

To Accounts payable a/c

(Being cash borrowed to maintain to minimum cash balance)

$2,200

$2,200

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