Question

On January 1, Easton Company had cash on hand of $80,000. All of January's $220,000 sales were on account. December sales of $238,000 were also all on account. Experience has shown that Easton typically collects 25% of receivables in the month of the sale and the balance the following month. All materials and supplies are purchased on account and Easton has a history of paying for half of these purchases in the month of purchase and half the following month. Such purchases were $150,000 for December and $157,000 for January. All other expenses including wages are paid in the month incurred. These amounted to $42,000 in December and $56,000 in January. Use this information to determine the projected ending balance of cash on hand for January. (Round answer to the nearest whole dollar)

Answer 1

The projected ending balance of cash on hand for January is calculated as follows:

Particular	$
Cash Balance Begining (A)	80,000
Add: Cash Receipt
Collection from credit sale (B):
25% Receivables collected in the month of sale ($220,000 * 25%)	55,000
75% Balance Receivables collected in the following month of sale ($238,000 * 75%)	178,500
Total collection from credit sale	233,500
Total Cash Available ( C = A + B)	$ 313,500
Less: Cash Payment (D)
The half payment for materials and supplies are made in the month of purchase ($157,000 * 1/2)	78,500
The remaining half payment for materials and supplies are made in the following month of purchase ($150,000 * 1/2)	75,000
Wages Paid for January	56,000
Total Payment :	209,500
Ending Cash Balance ( C - D)	$104,000

The projected ending balance of cash on hand for January is $104,000