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 $280,000 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 $161,000, all of which will be paid in December.

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: Required: 1. Prepare a schedule of expected cash collections for December Schedule of Expected Cash Collections December cash sales Collections on account October sales November sales December sales Total cash collections 2. Prepare a schedule of expected cash disbursements for merchandise purchases for December Schedule of Expected Cash Disbursements Payments to suppliers November purchases December purchases Total cash payments 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 Ashton Company Cash Budget For the Month of December Beginning cash balance Add collections from customers Total cash available

Explanation / Answer

Solution:

1 Schedule of Expected Cash Collections December cash Sales                      83,000 Collections on account October sales                      72,000 November sales                   315,000 December Sales                   120,000 Total Cash Collection                   590,000 2 Schedule of Expected Cash Disbursements Payment to Suppliers November purchases                      48,300 December purchase                      84,000 Total Cash Payments                   132,300 Cash Budget 3 Beginning cash Balance 20,000 Add: collection from customers                   590,000 Total Cash available                   610,000

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