Cash Budget
You have the following information about a H Ltd, a new business:
|
|
Budgeted Credit
sales
|
Budgeted Cash sales
|
|
January, 2014
|
40,000
|
30,000
|
|
February
|
45,000
|
20,000
|
|
March
|
50,000
|
25,000
|
|
April
|
55,000
|
30,000
|
Collections on credit sales average 40 percent in the month of sales and the remaining 60 percent in the month following the sales.
Cost of sales (purchases) averages 60% of total sales revenue.
Twenty percent of cost of sales is on cash basis, and 80 percent is paid in the month following purchases.
Other operating expenses according to the forecasted income statement follow:
|
|
January
|
February
|
March
|
|
Wages and salaries
|
$18,000
|
$18,000
|
$18,000
|
|
Office rent
|
6,000
|
6,000
|
6,000
|
|
Insurance
|
1,000
|
1,000
|
1,000
|
|
Utilities
|
2,000
|
2,000
|
2,000
|
|
Other operating costs
|
5,000
|
5,000
|
5,000
|
|
Depreciation
|
3,000
|
3,000
|
3,000
|
|
Interest expense
|
500
|
500
|
500
|
Note that the payroll, utilities, other operating costs, and interest expense are paid in cash each month as the expense is incurred.
The insurance expense is paid in January each year in advance for the whole year ($12,000 per year).
The office rent is paid quarterly in advance starting January each year
In March, the company plans to sell some old equipment and estimates it will received $10,000 from the sale.
At the same time, it must spend $30,000 on new equipment. The beginning cash balance on June 1 is $10,000.
Required:
a) Prepare the business’s cash budget for each of the three months: J
Cash Budget
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