Question

The owner of a building supply company has requested a cash budget for June. After examining the records of the company, you find the following:

Cash balance on June 1 is $736.

Actual sales for April and May are as follows:

	April		May
Cash sales	$10,000		$18,000
Credit sales	28,900		35,000
Total sales	$38,900		$53,000

Credit sales are collected over a 3-month period: 40% in the month of sale, 30% in the second month, and 20% in the third month. The sales collected in the third month are subject to a 2% late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.

Inventory purchases average 72% of a month's total sales. Of those purchases, 20% are paid for in the month of purchase. The remaining 80% are paid for in the following month.

Salaries and wages total $11,750 per month, including a $4,500 salary paid to the owner.

Rent is $4,400 per month.

Taxes to be paid in June are $6,780.

The owner also tells you that he expects cash sales of $18,600 and credit sales of $54,000 for June. No minimum cash balance is required. The owner of the company doesn’t have access to short-term loans.

Required:

1. Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments. Round calculations and final answers to the nearest dollar. Be sure to enter percentages as whole numbers.

Cash Budget For June
Beginning cash balance			$
Collections:
Cash sales
Credit sales:
Current month
$ ×  %
May credit sales
$ ×  %
April credit sales
Total cash available				$
Less disbursements:
Inventory purchases:
Current month
$ ×  %			$
Prior month
$ ×  %
Salaries and wages
Rent
Taxes
Total cash needs
Excess of cash available over needs				$

2. Conceptual Connection: Did the business show a negative cash balance for June?

Answer 1

1.

Cash Budget
For June
Beginning cash balance			736
Collections:
Cash sales		18600
Credit sales:
Current month
$54000 x 40%	21600
May credit sales
$35000 x 30%	10500
April credit sales ($28900 x 20% x 1.02)	5896	37996	56596
Total cash available				57332
Less disbursements:
Inventory purchases:
Current month
$72600 x 72% x 20%			10454
Prior month
$53000 x 72% x 80%			30528
Salaries and wages			11750
Rent			4400
Taxes			6780
Total cash needs				63912
Excess of cash available over needs				-6581

2. Yes