You have been asked to prepare a December cash budget for Ashton Company, a dist
ID: 2559086 • Letter: Y
Question
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:
The cash balance on December 1 is $53,400.
Actual sales for October and November and expected sales for December are as follows:
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 $341,000 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 $165,000, all of which will be paid in December.
Selling and administrative expenses are budgeted at $516,000 for December. Of this amount, $94,900 is for depreciation.
A new web server for the Marketing Department costing $121,500 will be purchased for cash during December, and dividends totaling $13,000 will be paid during the month.
The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.
Required:
1. Calculate the expected cash collections for December.
2. Calculate the expected cash disbursements for merchandise purchases for December.
3. 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.
October November December Cash sales $ 77,000 $ 81,200 $ 87,800 Sales on account $ 435,000 $ 538,000 $ 644,000Explanation / Answer
1
Calculate the expected cash collections for december
Particulars
$
December cash sales
87800
Collections on account
October sales (435000*18%)
78300
November sales (538000*60%)
322800
December sales (644000*20%)
128800
Total cash collections
617700
2
Calculate expected cash disbursements for merchandise purchases for december
Schedule of expected cash disbursements
Particulars
$
November purchase
165000
December purchase (341000*30%)
102300
267300
3
Prepare a cash budget for December
Aston company
cash budget
For the month of december
$
$
Beginning cash Balance
$53,400
Add: collection from customers
617700
Total cash available
$6,71,100
Less cash disbursements
Payments to suppliers for inventory
267300
Selling and administrative expense (516000-94900)
421100
New web server
121500
Dividends Paid
13000
Total cash disbursements
822900
Excess (deficiecy) of cash available over disbursements
($1,51,800)
Financing:
Borrowings
171800
Repayments
Interest
Total financing
171800
Ending cash Balance
$20,000
1
Calculate the expected cash collections for december
Particulars
$
December cash sales
87800
Collections on account
October sales (435000*18%)
78300
November sales (538000*60%)
322800
December sales (644000*20%)
128800
Total cash collections
617700
2
Calculate expected cash disbursements for merchandise purchases for december
Schedule of expected cash disbursements
Particulars
$
November purchase
165000
December purchase (341000*30%)
102300
267300
3
Prepare a cash budget for December
Aston company
cash budget
For the month of december
$
$
Beginning cash Balance
$53,400
Add: collection from customers
617700
Total cash available
$6,71,100
Less cash disbursements
Payments to suppliers for inventory
267300
Selling and administrative expense (516000-94900)
421100
New web server
121500
Dividends Paid
13000
Total cash disbursements
822900
Excess (deficiecy) of cash available over disbursements
($1,51,800)
Financing:
Borrowings
171800
Repayments
Interest
Total financing
171800
Ending cash Balance
$20,000
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