Sales on account are collected over a three-month period as follows: 10% collect

Question

   

Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 65% collected in the month following sale, and 21% collected in the second month following sale. The remaining 4% is uncollectible.

Purchases of inventory will total $25,000 for September. Thirty percent of a month's inventory purchases are paid for during the month of purchase. The accounts payable remaining from August's inventory purchases total $18,000, all of which will be paid in September.

   

   

Prepare a schedule of expected cash disbursements for inventory purchases for September. (Do not round intermediate calculations.)

   

   

Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September. Assume that any interest will not be paid until the following month. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required.)

Calgon Products, a distributor of organic beverages, needs a cash budget for September. The following information is available:

Explanation / Answer

Answer:

1) Schedule of expected cash collections for September

2) Schedule of expected cash disbursements for inventory purchases for September

3) Cash budget for September

Note 1: Selling and administrative expenses $14,000 includes Depreciation $4,000. Depreciation is a non-cash item. It does not involve any cash transaction, so it is excluded from Selling & Administative Expenses while preparation of Cash Budget.

Note 2 : The company maintains a minimum cash balance of $5,300. Total Deficit of cash available over disbursements ($9,150). Hence in order to maintain minimum cash balance $5,300, the company require $14,450 ($5,300 + $9,150) borrowing from bank.

Schedule of Expected Cash Collections   September cash sales $9,200   September collections on account: 21% of July sales collected in September Month $6,250 65% of August sales collected in September Month $19,500 10 % of September sales collected in same month $4,100 Total cash collections $39,050

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