Question

On January 1, Easton Company had cash on hand of $90,000. All of January's $240,000 sales were on account. December sales of $242,000 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 $174,000 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 $48,000 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

All amounts are in $

Opening balance of January = 90,000

Add :

Sales made in December, collected in January = 242,000 x 75% = 181,500

Sales made in January, collected in January = 240,000 x 25% = 60,000

Less :

Purchases made in December, paid in January = 174,000 x 50% = 87,000

Purchases made in January, paid in January = 157,000 x 50% = 78,500

Wages paid in January = 48,000

Closing Cash Balance For January = 90,000 + 181,500 + 60,000 - 87,000 - 78,500 - 48,000

= 118,000