Question

Milton Company is a chocolate wholesaler. The company presents the following information to the date of April 30:

Cash ………………………………………… .. $ 9,000

Accounts receivable …………………… .. 54,000

Inventory …………………………………… .. 30,000

Building and equipment, net …… .. 207,000

Accounts payable ……………………… $ 63,000

Note payable ………………………… .. 14,500

Stock capital …………………………… .. 180,000

Retained earnings …………………… 42,500

The company is in the process of preparing the budget for the month of May. Below are a series of items to prepare the cash budget:

1 Sales budgeted for May are $ 200,000. Of that item, 30% is charged at the moment and the remaining are credit sales. 50% of credit sales are charged in the month of sale and the remaining is charged in the following month. All accounts receivable as of April 30 are collected in May.

2 Inventory purchases are expected to be $ 120,000 in the month of May. All are on credit. 40% of purchases are paid in the month of purchase, the remainder in the following month. All accounts payable as of April 30 are paid in May.

3 The inventory balance as of May 31 budgeted is $ 40,000

4 Sales and administration expenses for May budgeted are $ 72,000. These expenses are paid in Cash. Depreciation is budgeted at a rate of $ 2,000 per month.

5 The Note Payable on April 30 will be paid in May, with an additional $ 100 of interest.

6 I bought a new device that cost $ 6,000 to be paid in cash in May.

7 In May, he takes a loan for $ 20,000 to the Bank by signing a note that expires in one year.

Requirements:

Prepare a Cash Budget for the month of May. Support this budget with the Schedule of Cash Collections from sales “and Schedule of Cash Disbursements” for merchandise purchases.

Answer 1

Cash Budget for the month of May

Opening Cash Balance                                                                   9000 $

Cash Sale             (1)                                                                     60000 $

Credit Sale Collected      (2)                                                             70000 $

Accounts Receivable                                                                      54000 $

Bank Loan                                                                                     20000 $

Total Cash Collection May (A)                                                    213000 $

Inventory Paid                  (3)                                                          48000 $

Accounts Payable                                                                          63000 $

Sales and administration expenses                                         72000 $

Note Payable with interest                                                             14600 $

Bought New Device                                                                        6000 $

Total Cash Disbursements May (B)                                          203600 $

Closing Cash Balance     (A-B)                                                     9400 $

Working Note:-

Total Sale – 200000 $

1. Cash Sale – 200000 $ * 30% = 60000 $
2. Credit Sale Collected in May – (200000 $ * 70%) * 50% = 70000 $

Inventory Purchase – 120000 $

3. Inventory Paid 120000*40% = 48000 $