You have been asked to prepare a December cash budget for Ashton Company, a dist

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 a. The cash balance on December 1 will be $39,000 b. Actual sales for October and November and expected sales for December are as follows October $65,000 405,000 NovemberDecember Cash sales Sales on account 67,000 523,000 $82,700 605,000 Sales on account are collected over a three-month period in the following ratio: 18% collected in the month of sale, 59% collected in the month following sale, and 21% collected in the second month following sale. The remaining 2% are uncollectible Purchases of inventory will total $281,000 for December, 31% of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $163,000, all of which will be paid in December. c. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is e. A new Web server for the Marketing Department costing $74,000 will be purchased for cash during f. The company must maintain a minimum cash balance of $20,000. An open line of credit is available for depreciation. These are paid in the period incurred December, and dividends totalling $9,100 will be paid during the month from the company's bank to bolster the cash position, as needed

Explanation / Answer

1 ASHTON COMPANY Schedule of Expected Cash Collections January December Cash Sales $82,700 Collections on account October Sales $405,000 $85,050 November Sales $523,000 $308,570 December Sales $605,000 $108,900 Total Cash Collections $585,220 2 ASHTON COMPANY Schedule of Expected Cash Disbursements Payment to Suppliers November Purchases $163,000 December Purchases $281,000 $87,110 Total Cash Payments $250,110 3 ASHTON COMPANY Cash Budget For the month of December Beginning Cash Balance $39,000 Add: Total cash collection $585,220 Total cash available before current financing $624,220 Deduct Disbursements Paid for Inventory $250,110 Selling and administrative expenses $380,000 Purchase of web server $74,000 Payment of Dividend $9,100 Total Disbursements $713,210 Excess (deficiency) of Available cash over cash disbursements -$88,990 Financing: Borrowings $108,990 Repayments $0 Interest $0 Ending Balance $20,000

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