Sales on account are collected over a three-month period as follows: 20% collect

Question

   

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.

Purchases of inventory will total $315,000 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 $181,500, all of which will be paid in December.

  

Prepare a schedule of expected cash disbursements for merchandise purchases for December.

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.

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:

Explanation / Answer

1)Schedule for expected cash collection for December:

Cash sales = $86200

Sales On A/c = $127800 (639000*20%)= 20 % of current month"s sale

= $345600(576000*60%)=60% of November Sale

= $79200 (440000*18%)=18% of October Sale

Total expected cash collections= $638800

2)Schedule for expected cash disbursement for merchandise purchase:

For December = $315000*30% = $94500

For November = $181500

Total payment for purchases =$276000

3) Cash Budget:

56600

638800

Particulars Details($) Amount($) Opening Balance of cash 56600

56600

Add:Receipts Cash Collections for sales 638800

638800

Total Cash Balance 695400 Less:Payments Purchases 276000 Selling & Adm exps excluding Depreciation 447900 Purchase of web server 103500 Dividends 10000 Total Payments 837400 Cash Balance=opening+receipts-payments -142000 Minimum cash balance required 20000 Borrowing needed 162000

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