Question

In preparation for the quarterly cash budget, the following revenue and cost information have been compiled. Prepare and evaluate a cash budget for the month of October based on the information shown below.

Month	Sales	Purchases
August (actual)	$3,000,000	$3,500,000
September (actual)	$4,500,000	$2,000,000
October (forecast)	$1,000,000	$   500,000

•     The firm collects 60 percent of sales for cash and 40 percent of its sales one month later.

•     The firm pays cash for 40 percent of its purchases.

•     The firm pays for 60 percent of its purchases the following month.

•     Salaries and wages amount to 15 percent of the preceding month’s sales.

•     Lease payments of $100,000 must be made each month.

•     Depreciation expense each month of $45,000.

•     The firm has a beginning cash balance in October of $100,000 and maintains a minimum cash balance of $200,000.

Answer 1