Question

In March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company’s sales are made on account. The following information has been provided by Spicer’s management.

  

Month	Credit Sales
January	$	300,000	(actual)
February		400,000	(actual)
March		593,000	(estimated)
April		503,000	(estimated)
May		800,000	(estimated)

  

The company’s collection activity on credit sales historically has been as follows.

  

Collections in the month of the sale	50	%
Collections one month after the sale	30
Collections two months after the sale	15
Uncollectible accounts	5

  

Spicer’s total cash expenditures for March, April, and May have been estimated at $1,200,000 (an average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No financing or investing activities are anticipated during the second quarter.

  

Compute Spicer’s budgeted cash balance at the ends of March, April, and May.

Answer 1

Cash Receipts budget

	March	April	May
Cash collected in the month of sale	296,500 (593,000*50%)	251,500 (503,000*50%)	400,000 (800,000*50%)
Cash collected in the first month after the sale	120,000 (400,000*30%)	177,900 (593,000*30%)	150,900 (503,000*30%)
Cash collected in the second month after the sale	45,000 (300,000*15%)	60,000 (400,000*15%)	88,950 (593,000*15%)
Total cash collections	461,500	489,400	639,850

Cash Budget

	March	April	May
Beginning cash balance	500,000	561,500	650,900
Cash receipts	461,500	489,400	639,850
Cash payments	(400,000)	(400,000)	(400,000)
Ending cash balance	561,500	650,900	890,750