Question

Bluebird Ltd has provided the following forecasted items for the months of July through to September 2020.

	July	August	September
	$	$	$
Sales	13,000	14,000	15,000
Purchases	9,400	8,000	10,000
Operating expenses	3,600	6,400	5,000

Other Information:

• 35% of Sales are cash sales, the remaining 65% of credit sales which are collected as follows:

o 30% in the month of the sale

o 40% in the month after the sale

o 28% in the 2nd month after the sale

o 2% are never collected due to the customer going bankrupt

• Sales in the months of May and June were $11,000 and $10,000 respectively.

• Operating expenses include depreciation expense. Depreciation expense each month is $900. All expenses and purchases are paid for in the same month that they are incurred.

• Bluebird expects to sell some old machinery for $7,000 in August. New machinery worth $9,500 will be purchased in September.

• The cash balance on 1st July 2020 is $5,700.

Required:

a. Prepare a schedule of the Cash receipts from Accounts receivable showing the collections for the three months of July through to September.

b. Prepare a Cash budget for Bluebird Ltd for the three months of July through to September 2020.

Answer 1

Schedule of Cash Collections
	July	August	September	Quarter
Cash Sales	4550	4900	5250	14700
Collections from Credit Sales
May Sales	2002			2002
June Sales	2600	1820		4420
July Sales	2535	3380	2366	8281
August Sales		2730	3380	6110
September Sales			2925	2925
Total collections	11687	12830	13921	38438
Cash Budget
	July	August	September	Quarter
Beginning Balance	5700	5287	11617	5700
Cash Receipts:
Cash Collections	11687	12830	13921	38438
Sale of old Machinery	0	7000	0	7000
Total Cash Available	17387	25117	25538	51138
Cash Disbursements:
Purchases	9400	8000	10000	27400
Operating Expenses	2700	5500	4100	12300
MAchinery Purchase	0	0	9500	9500
Total Cash Disbursements	12100	13500	23600	49200
Ending Balance	5287	11617	1938	1938