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 is $41,200. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $75,400 S 82,400 97,200 490,000 544,000 629,000 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. c. Purchases of inventory will total $366,000 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 $183,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $472,000 for December. Of this amount, $60,000 is for depreciation e. A new web server for the Marketing Department costing $96,000 will be purchased for cash during December, and dividends totaling $11,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to bolster the cash position as needed Required 1. Prepare a schedule of expected cash collections for December Schedule of Expected Cash Collections December cash sales Collections on account: S 97,200 October sales November sales December sales 173,400 544,000 629,000 S 1.443,600 Total cash collections

Explanation / Answer

Solution:

Part 1 – Schedule of Expected Cash Collections

Schedule of Expected Cash Collections

December Cash Sales

$97,200

Collections on account:

October Sales ($490,000*18% collected in Dec)

$88,200

November Sales (544,000*60% collected in Dec)

$326,400

December Sales (629,000*20% collected in Dec)

$125,800

Total Cash Collections

$637,600

Part 2 – Schedule of Expected Cash disbursements for merchandise purchases for December

Schedule of Expected Cash disbursements

Payment to Suppliers:

November Purchases

$183,000

December Purchases

($366,000*30% paid during the month of purchase)

$109,800

Total Cash Payments

$292,800

Part 3 – Cash Budget for December

Ashton Company

Cash Budget

For the Month of December

Beginning Cash Balance

$41,200

Add: Collections from customers

$637,600

Total cash available

$678,800

Less: Cash disbursements:

Payment to suppliers for inventory

$292,800

Selling and administrative expenses (excluding non cash item depreciation)

$412,000

New web server

$96,000

Dividends Paid

$11,500

Total cash disbursements

$812,300

Excess (deficiency) of cash available over disbursements

-$133,500

Financing:

Borrowings

$153,500

Repayments

Interest

Total Finiancing

$153,500

Ending Cash Balance

$20,000

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Schedule of Expected Cash Collections

December Cash Sales

$97,200

Collections on account:

October Sales ($490,000*18% collected in Dec)

$88,200

November Sales (544,000*60% collected in Dec)

$326,400

December Sales (629,000*20% collected in Dec)

$125,800

Total Cash Collections

$637,600

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