Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales
ID: 2754889 • Letter: T
Question
Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $7,000, 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 in the month following the sale and do not receive 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," which 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.
Please show all work step by step
Explanation / Answer
Solution:
Tierney Enterprises
Cash Budget
Item
Cash
Beginning Cash Balance
Add Cash Receipts
Sales
6944
Less Cash Outgo
Purchase
3500
Other Payments
1750
Cash Surplus /Deficit
1694
Average Cash Flow per month
Sales = 40% * 7000*0.98 (Current months sales proceed) + 60%*7000(previous months sale proceed)
= $2,744 + $4,200 = $6,944
Purchase = 50% * 7000 =$3500
Other Payments = 25% * 7000 = $1750
Cash balance = 6944 -3500 – 1750 =$1694
Tierney Enterprises
Cash Budget
Item
Cash
Beginning Cash Balance
Add Cash Receipts
Sales
6944
Less Cash Outgo
Purchase
3500
Other Payments
1750
Cash Surplus /Deficit
1694
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