A retail company is preparing their budget for the coming year, commencing 1 January. The following information has been assembled: All sales are on credit. 60% of customer accounts are collected in the month of the sale, 35% in the following month, and 5% are considered uncollectable. Management has estimated that of the amount expected to be outstanding from customers at the end of the current year (31 December), only 20% will be collected in January with the remainder being uncollectable. 70% of the goods purchased are paid for in the month of purchase and the remaining 30% is paid in the following month. At the end of this year, the following balances are expected: cash $20 000; Accounts receivable $55 000; and, accounts payable $22 000. The company maintains a minimum cash balance of $20 000 at all times, and sometimes needs to borrow to achieve this. Assume that bank financing is available in multiples of $1 000 at 8% interest rate per annum. Borrowing takes place at the beginning of each month and repayment occurs at the end of the month. Interest is repaid at the same time as the principal and is based on the amount of the principal repaid at that time. Additional budget data: 31 January 28 February 31 March Sale revenue $150 000 $180 000 $185 000 Purchases 90 000 100 000 140 000 Salaries 31 000 24 000 45 000 Required: Prepare a schedule: of budgeted cash receipts for the three-month period, from January to March Of budgeted cash disbursements for the three-month period, from January to March. That summarises the company’s cash balances at the end of the three-month period, and includes any bank financing and repayments needed to maintain the minimum cash balance

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 5PB: Cash budget The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for...

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A retail company is preparing their budget for the coming year, commencing 1 January. The following information has been assembled:

All sales are on credit. 60% of customer accounts are collected in the month of the sale, 35% in the following month, and 5% are considered uncollectable. Management has estimated that of the amount expected to be outstanding from customers at the end of the current year (31 December), only 20% will be collected in January with the remainder being uncollectable.
70% of the goods purchased are paid for in the month of purchase and the remaining 30% is paid in the following month.
At the end of this year, the following balances are expected: cash $20 000; Accounts receivable $55 000; and, accounts payable $22 000.
The company maintains a minimum cash balance of $20 000 at all times, and sometimes needs to borrow to achieve this. Assume that bank financing is available in multiples of $1 000 at 8% interest rate per annum. Borrowing takes place at the beginning of each month and repayment occurs at the end of the month. Interest is repaid at the same time as the principal and is based on the amount of the principal repaid at that time.
Additional budget data:

	31 January	28 February	31 March
Sale revenue	$150 000	$180 000	$185 000
Purchases	90 000	100 000	140 000
Salaries	31 000	24 000	45 000

Required:

Prepare a schedule:

of budgeted cash receipts for the three-month period, from January to March
Of budgeted cash disbursements for the three-month period, from January to March.

That summarises the company’s cash balances at the end of the three-month period, and includes any bank financing and repayments needed to maintain the minimum cash balance

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