Question

Graham Potato Company has projected sales of $9,600 in September, $13,000 in October, $19,600 in November, and $15,600 in December. Of the company's sales, 30 percent are paid for by cash and 70 percent are sold on credit. Experience shows that 40 percent of accounts receivable are paid in the month after the sale, while the remaining 60 percent are paid two months after. Determine collections for November and December.
  
Also assume Graham’s cash payments for November and December are $16,500 and $9,000, respectively. The beginning cash balance in November is $5,000, which is the desired minimum balance.

a. Prepare a cash receipts schedule for November and December.
  

b. Prepare a cash budget with borrowing needed or repayments for November and December. (Negative amounts should be indicated by a minus sign. Assume the November beginning loan balance is $0.)

Answer 1

CASH BUDGET

RECEIPTS	NOVEMBER	DECEMBER
OPENING BALANCE	5000	2052
CASH SALES(30% of relevant month)	5880	4680
COLLECTION FROM DEBTORS (sept sales)	4032
COLLECTION FROM debtors oct sales	3640	5460
COLLECTION FROM NOV SALES		5488
TOT RECEIPTS	18552	17680
PAYMENTS	16500	9000
CLOSING BALANCE	2052	8680

WORKING NOTE:

We start with opening balnce of cash ie $5000 as given out being opening balance

30% OF TOTAL SALES OF EACH MONTH IS 30% OGF TOTAL SALES

So you get 30% of 15500 =4680 in November sales

Then we compute the rest of the receipts being collection from debtors as given in question

For eg 40% of balance amout of sales,we receive one months later and the balance two months later which is clear from the above cash budget