Little Flower Establishment would like to prepare a cash budget for July and August. The following information has been gathered:
(i) Cash balance as of July 1: $ 1,440,000
(ii) Forecasted sales are as follows:
May June July August
Cash sales............................ $1,600,000 $ 1,920,000 $ 1,920,000 $ 1,920,000
Credit sales.......................... 1,280,000 1,440,000 1,600,000 1,920,000
Total..................................... $ 2,880,000 $ 3,360,000 $ 3,520,000 $ 3,840,000
(iii) Credit sales are collected 40% in the month of the sale, 35% in the month following the sale, and 25% in the second month following the sale.
(iv) Purchases for these months (July – August) are $ 1,900,000 and $ 1,900,000 respectively which is paid on the same month of purchases made
(v) Monthly cash operating expenses is $ 320,000
(vi) Income taxes to be paid in cash in August $ 240,000
Required
(a) Prepare a schedule of cash collections (cash and credit collections) for July and August.
(b) Prepare a Cash Budget for months July and August
A)
July collection
Cash sales = 1,920,000
July credit sales = 1,600,000*40% = 640,000
June credit sales = 1,440,000*35%=504, 000
May credit sales = 1,280,000*25% = 320,000
Total = $3, 384,000
August collection
Cash sales = 1,920,000
August credit sales = 1,920,000*40% =768, 000
July credit sales = 1,600,000*35% =560, 000
June credit sales = 1,440,000*25% = 360,000
Total = $3, 608,000
B) Cash budget
Opening July balance = 1,440,000
Cash collection = 3,384,000
Purchase made = (1, 900,000)
Operating expense = (320, 000)
Income tax = (240, 000)
Closing = $2, 364,000
August
Opening = 2,364,000
Sales collection = 3,608,000
Purchase made = (1, 900,000)
Operating expense = (320, 000)
Income tax = (240, 000)
Closing = $3, 512,000
If you find the answer helpful please upvote.
Get Answers For Free
Most questions answered within 1 hours.