Wolverine, Inc. began operations on January 1 of the current year with a $12,500

Question

Wolverine, Inc. began operations on January 1 of the current year with a $12,500 cash balance. 50% of sales are collected in the month of sale; 50% are collected in the month following sale. Similarly, 10% of purchases are paid in the month of purchase, and 90% are paid in the month following purchase. The following data apply to January and February: January February Sales $ 40,000 $ 60,000 Purchases 32,500 45,000 Operating expenses 7,500 9,500 If operating expenses are paid in the month incurred and include monthly depreciation charges of $3,000, determine the change in Wolverine's cash balance during February.

Explanation / Answer

Opening Cash Balance in Feb                   24,750.00 Closing Cash Balance in Feb                   34,500.00 Change in Cash Balance during Feb                     9,750.00 Statement showing computations Particulars January February March Beginning Cash balance                   12,500.00                      24,750.00 Collection in Same month@50%                   20,000.00                      30,000.00 Collection in next month@50%                      20,000.00                      30,000.00 Payment in same month @10%                   (3,250.00)                      (4,500.00) Payment in next month @90%                    (29,250.00)                    (40,500.00) Operating expenses Excluding Depreciation i.e OE - 3000                   (4,500.00)                      (6,500.00) Ending Cash Balance                   24,750.00                      34,500.00

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