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:

1. The cash balance on December 1 is $45,400.

2. Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	67,800	$	70,400	$	93,000
Sales on account	$	465,000	$	562,000	$	614,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

3. Purchases of inventory will total $356,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $164,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at $431,000 for December. Of this amount, $54,200 is for depreciation.

5. A new web server for the Marketing Department costing $120,500 will be purchased for cash during December, and dividends totaling $13,500 will be paid during the month.

6. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

1)	Schedule of Expected Cash collections
	December cash sales					93,000
	Collections on account
	October sales		(465000*18%)			83700
	november sales		(562000*60%)			337200
	december sales		(614000*20%)			122800
	total cash collections					636,700	answer
2)	Schedule of Expected cash disbursement
	Payments to Suppliers:
	November purchases					164,000
	December purchases		(356000*30%)			106800
	total cash disbursement					270,800	answer
3)	Cash budget
	Beginning cash balance							45,400
	Add collections from customers							636,700
	total cash available							682,100
	less cash disbrsements
	payments to suppliers for inventory						270,800
	Selling and administrative expenses						376,800
	New web server						120,500
	dividends paid						13,500
	total cash disbursements							781,600
	Excess(deficiency) of cash available over disbursement							-99,500
	Financing:
	Borrowings							119,500
	Repayments							0
	interest							0
	total financing							119,500
	Ending cash balance							20,000