Question 4 (2 points) Tierney Enterprises is constructing its cash budget. Its b

Question

Question 4 (2 points) Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $5,000, and they are constant form month to month. 40% ofits customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount. The firm has no bad debts. Purchases for next month's sales are constant at 50% of projected sales for the next month. "Other payments," which include wages, rent, and taxes, are 25% ofsales for the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the month.

Explanation / Answer

CASH BUDGET: Beginning balance of cash Nil Collections from sales and accounts rececivable 4960 Total cash available Cash disbursement for Purchases (5000*50%) 2500 Other payments for wages, rent (5000*25%) 1250 Total payment made 3750 Ending balance of cash 1210 Net cash flows during the year: Reciepts during the month 4960 Less: payment for the month 3750 Average Cash inflow 1210 Note: Cash collection for the month: 60% of sales from Prevous month (60% of $5000) 3000 40% of sales of current month less 2% discount(40% of $5000-2%) 1960 Cash collection for the month 4960

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