Question

A company sells cars. The data following data are taken from a statement of financial position at March 31, 2019

Cash $6000

Accounts Receivable $18000

Inventories $34000

Accounts payable $19750

Additional info:

1) Actual and expected sales are:

March (Actual) $40000

April $50000

May $62000

June $80000

2) 30% of sales are on credit, the remaining are in cash. All credit sales are collected in the following month.

3) The ending inventory should be 70% of the following month's sales cost of goods sold.

4) Gross margin is expected to be 20% of sales

5) Of each month's purchases, 40% are paid in cash, and the remaining is paid for in the month following purchase,

6) Monthly operating expenses are: salaries in commissions, 10% of sales; rent, $2000 and other expenses, excluding depreciation equipment, equal to 8% of sales. All paid in the month where they are incurred. Monthly depreciation equipment is $800.

7) Equipment will be purchased in April $1500 in cash

8) The company has a policy that the ending cash balance in each month must be at least $3500. The company can borrow at the beginning of each month. All repayments are made at the end of the month. All borrowings and repayments are made in increments of $100. The interest rate on borrowings is 5% per year with interest being paid in the month of borrowings.

Question: Prepare the following budget

	April	May
Cash balance beginning
Cash collection from sales
Total
Disbursements:
Purchases
Operating expenses
Equipment
Total disbursements:
Surplus or deficit of cash
Borrowings or repayments
Interests
Cash balance

Could anyone give an explanation on how to do the budget step by step?

Answer 1

Cash budget is the statement prepared for cash inflow and cash outflow during the specific period of time.This help to know the ending cash balance for the particular. Generally cash budget is prepared annually, semi-annually, quarterly or monthly.
cash budget for the month of April and may is as follows:- April (3) May (6) I cash balance begining (a) 6000 4462 cash collection from sales (6) 47000 58,400 Total (atb) 53.000 62,862 Disbursements: purchases (6) 136,038 48,304 Loperating expenses (d) 11000 13,160 Equipment les L1500 - Total disbursement (Ctote) 4853861464 surplus a (deficit of cash 4 462 1398 Borrowings or repayments - 2200 Tel Interests (Paid in the month of borrowin (9) cash balance ending 4462 3.589 (6 calcuation of cash collection from sale (6) April (8) may (3) cash sales - 70 % 35000 43,400 I credit sale - 30% collected in 12,000 is, ooo the following month Total cash collection from sale 47000 58,400 - - - - to calculation of purchases U pinchases April (s) may (s) Tunes). 1 sale 50000 62,000 80.000 less Gross profit zoh 10,000 12,400 16,000 2) cost of Goods sold 40,000/49, 600 64,000 3) Ending enventory 70% of 34,720 44,800 following months cost of goods sold 4) Begining in Yestory 34,000 34720 | purchases (2 +3 - 1 40,720 59680|

payment for purchases April May (3) cash purchases- 40% 116,288 23,872 credit purchases -60% in the 19,750 24,422 month following purchases Total payment for purchases 36038 48304 pusachas for marcha $407000 88000 d operating expenses. Calculeated as follows' - April(s) may () salaries in commission 10% of sale sooo 6200 Rent | 2000 2000 other expenses 8% of sale 4000 4960 Depreciation Equpment 111,00 0 13,160 Mote: Depreciation is now cash element to Depreciation an equipirent is not considered. interest an Borrowing for the may Total Borrowing a $2,200 month of interest paid in the month of borrowing interest = $2200X-