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: Cash sales Sales on account October $ 65,000 397,000 November $ 65,000 522,000 December $ 82,600 598,000 Sales on account are collected over a three-month period in the following ratio: 16% collected in the month of sale, 57% collected in the month following sale, and 22% collected in the second month following sale. The remaining 5% are uncollectible. c. Purchases of inventory will total $282,000 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 d. Selling and administrative expenses are budgeted at $429,000 for December. Of this amount, $52,000 is for depreciation. These are paid in the period incurred. e. A new Web server for the Marketing Department costing $78,000 will be purchased for cash during December, and dividends totalling $9,000 will be paid during the month. f. The company must maintain a minimum cash balance of $19,000. 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 ASHTON COMPANY Schedule of Expected Cash Collections December cash sales Collections on account: October sales November sales December sales Total cash collections

Answer 1

Solution:

1.)Expected Cash Collections for December:

Ashton Company

Schedule of Expected Cash Collections

December cash sales	$82,600
Collections on account:
October sales :($397,000 × 22%)	$87,340
November sales:($522,000 × 57%)	$297,540
December sales:($598,000 × 16%)	$95,680
Total cash collections	$563,160

2)

Ashton Company

Schedule of Expected Cash Disbursements:

Payment to supplies:
November purchases ( accounts payable)	$163,000
December purchases($282,000 × 31%)	$87,420
Total cash payments	$250,420

3.)

Ashton Company

Cash Budget

For the Month of Decemeber

Beginning cash balance		$39,000
Add collections from customers		$563,160
Total cash available		$602,160
Less: cash disbursements:
Payment to suppliers for inventory	$250,420
Selling and administrative expenses	$377,000
New web server	$78,000
Dividends paid	$9,000
Total cash disbursements		$714,420
Excess (deficiency) of cash available over disbursements		$(112,260)
Financing:
Borrowing		$131,260($112,260+$19,000)
Repayments		0
Interest		0
Total financing		$131,260
Ending cash balance		$19,000

* Selling and administrative expenses = $429,000 - $52,000

= $377,000