Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales

Question

Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $5,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay the in the month following the sale and do not reveive 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," whcih include wages, rent, and taxes, are 25% of sales for the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the month.

Explanation / Answer

Hi,

Please find the answer as follows;

Cash Budget

Average Net Cash Flow = 1210 (as calculated above)

Thanks.

Sales with Discount (5000*.40 - 5000*.40*.02) 1960 Sales Value from Previous Month (5000*.60) 3000 Total Collection in a Month 4960 Purchases (5000*.50) 2500 Wages, rent, and taxes (5000*.25) 1250 Total Payments in a Month 3750 Average Net Cash Flow 1210

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