Question

1. Based on the following data, prepare a cash budget (in proper form with labels) for July and August.

Forecast sales

May     $12,000       Cash sales are 30% of total sales. Credit sales

June     15,000         are collected as follows: 60% one month after the

July      $16,000        sale and 40% 2 months after the sale

August $12,000

Accounts payable are paid 100% 2 months after the purchase

Expected A/P

May     $4,500             In addition to purchases, there are utility

June    $6,500             bills of $1,500 each month and rent of $1,200

July     $7,000             per month.

August $8,000

Beginning cash for July is $4,800

Answer 1

Solution)

	July	August
Beginning balance of cash (i)	$4,800	$12,060
Cash sales( being 30% of the total sales)	$4,800	$3,600
Amount collected for the credit sales (60% of credit sales collected in next month and 40% of credit sales after two months of sales) (ii)( see working note)	$9660	$10920
Adding (i) +(ii)	$19,260	$26,580
Less: Account payable ( 2 months after purchase)	($4,500)	($6,500)
Less : utility bills	($1,500)	($1,500)
less: rent	($1,200)	($1,200)
Closing balance at the end of the year	$12,060	$17,380

Working notes:

Cash sales are 30% of the total sales

	May	June	July	August
Total sales	$12000	$15000	$16000	$12000
Cash sales for the month (30% of total sales)	$3600	$4500	$4800	$3600
Credit sales for the month	$8400	$10500	$11200	$8400

60% of credit sales are received after one month of sale and 40% of credit sales is received after two months of sale, which means part of credit sales for may month $8400 , 60% of $8400 will be received in June = $5040 and remaining 40 % of $8400 is received in July i.e $3360

Similarly total credit sale of June = $10500

60% of $10500 = $6300 will receive in July month

40% of $10500 = $4200 will receive in August month

Total credit sales of July = $11200

60% of $11200 = $6720 will receive in August month

40% of $11200 = $4480 will receive in September month

	July	August
Amount of credit sales of May to be received	$3360	nil
Amount of credit sales of June to be received	$6300	$4200
Amount of credit sales of July to be received		$6720
Total amount of credit sales to be received	$9660	$10920

Account payable are paid after 2 months , means May Account payables will be paid in July = $4500 and June account payables will be paid in August = $6500