E8-18 Preparing Cash Receipts and Cash Payments Budgets [LO 8-4] Martin Clothing

Question

E8-18 Preparing Cash Receipts and Cash Payments Budgets [LO 8-4] Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made for the desert heat. It sells to individuals as well as local companies that coordinate adventure getaways in the desert for tourists. The following information is available for several months of the current year:

The majority of Martin’s sales (75 percent) are cash, but a few of the excursion companies purchase on credit. Of the credit sales, 35 percent are collected in the month of sale and 65 percent are collected in the following month. All of Martin’s purchases are on account with 50 percent paid in the month of purchase and 50 percent paid the following month.

Required:
1. Determine budgeted cash collections for July and August. (Round your intermediate calculations and final answers to nearest whole dollar.)

2. Determine budgeted cash payments for July and August.

Cash Expenses Paid Month May June Sales Purchases $ 100,000 $70,000 $19,000 25,000 38,250 29,400 119,000 135,000 129,000 93,000 112,000 74,000 Ul August

Explanation / Answer

1. Cash sales = Sales*75%

Credit sales = Sales*25%

Collection pattern for credit sales = 35% in the month of sale and 65% in the month following sale

Budgeted cash collections for July = July cash sales + (July credit sales * 35%) + (june credit sales * 65%)

= (135,000 * 75%) + (135,000 * 25% * 35%) + (119,000 * 25% * 65%) = 132,400

Budgeted cash collections for August = August cash sales + (August credit sales * 35%) + (july credit sales * 65%)

= (129,000 * 75%) + (129,000 * 25% * 35%) + (135,000 * 25% * 65%) = 129,975

2. Payment pattern = 50% in the month of purchase and 50% in the following month.

Budgeted cash payments for July = (july purchases * 50%) + (june purchases * 50%)

= (112,000 * 50%) + (93,000 * 50%) = 102,500

Budgeted cash payments for August = (august purchases * 50%) + (july purchases * 50%)

= (74,000 * 50%) + (112,000 * 50%) = 93,000

July August Budgeted cash collections 132,400 129,975

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