Question

Herbal Care Corp. a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur The company has requested a $40 000. 90-day loan from its bank to help meet cash requirements during the quarter Since Herbal Care has experienced difficulty in paying off its loans in the past the loan officer at the bank has asked the company to prepare a cash budget for the quarter In response to this request the following data have been assembled a On July 1. the beginning of the third quarter the company will have a cash balance of $46.500 b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account May (actual) June (actual) July (budgeted) August (budgeted) September (budgeted) $ 270.000 $ 310 000 S430 000 $ 640 000 $ 330.000 Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below Merchandise purchases Salaries and wages Advertising Rent payments Depreciation July $258,000 $ 41,000 $160,000 $ 7,000 $ 7,500 August $384.000 $50,000 $125,000 $ 7,000 $ 7,500 September $198.000 51,000 $ 91,000 $ 7.000 $ 7.500 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $186,000 d. Equipment costing $10,000 will be purchased for cash during July e. In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September. Interest on the loan will total $1,200 Required: 1. Prepare a schedule of expected cash collections for July August, and September and for the quarter in total Quarter Herbal Care Corp. Schedule of Expected Cash Collections July August September From accounts receivable May sales June sales From budgeted sales July sales August sales September sales Total cash collections

Answer 1

Schedule of Cash Collections
	July	August	September	Quarter
From Accounts receivable
May Sales	$                8,100			$                     8,100
June Sales	$           2,17,000	$                 9,300		$               2,26,300
From Budgeted Sales
July Sales	$           1,07,500	$           3,01,000	$                12,900	$               4,21,400
August Sales		$           1,60,000	$             4,48,000	$               6,08,000
September Sales			$                82,500	$                   82,500
Total Cash Collections	$          3,32,600	$           4,70,300	$            5,43,400	$             13,46,300

Working

Schedule of Cash Collections
	July	August	September
From Accounts receivable
May Sales	=270000*3%
June Sales	=310000*70%	=310000*3%
From Budgeted Sales
July Sales	=430000*25%	=430000*70%	=430000*3%
August Sales		=640000*25%	=640000*70%
September Sales			=330000*25%

Cash Budget
	July	August	September	Quarter
Beginning Balance	$              46,500	$              15,100	$                45,400	$                   46,500
Cash Collections	$           3,32,600	$           4,70,300	$             5,43,400	$             13,46,300
Total Cash Available	$           3,79,100	$           4,85,400	$             5,88,800	$             13,92,800
Cash Disbursements
Purchases	$           1,86,000	$           2,58,000	$             3,84,000	$               8,28,000
Salaries and Wages	$              41,000	$              50,000	$                51,000	$               1,42,000
Advertising	$           1,60,000	$           1,25,000	$                91,000	$               3,76,000
Rent Payments	$                7,000