Question

Month	Budgeted Cash Sales	Budgeted Credit Sales	Budgeted Cash Purchases	Budgeted Credit Purchases
December		8,000		21,000
January		9,000		23,000
February		11,000		25,000
March	77,800	12,000	12,000	22,000
March	68,500	12,500	12,500	23,500
May	72,000	12,300	12,300	24,500

Wages & other operating expenses are estimated as follows:

Month	Wages	Other Expenses
March	20,000	28,000
April	17,500	22,000
May	20,000	23,000

 Newequipment purchased in February for $16,750 istobepaid forin April.

 New furniture purchased in March for $15,000 isto be paid forin May.

 Cash atBankbalance (openingbankbalance) at1stMarchwas$18,000.

Credit Sales

The guest house has the following payment terms: 30 days end of month (EOM), a discount of 2.0% is offered to encourage debtors to pay promptly. However, analysis of the payment history of accounts receivable reveals the following:  75% of credit sales are paid in the month following sale (the 2% discount is applied to these payments)  15% of credit sales are paid in the month following the first payment  5% of credit sales are paid in the third month following the sale  Bad debts consistently account for 5% of credit sales

Credit Purchases

The guest house has negotiated with many of the suppliers for a 1.7% discount when payment is made in the month following the credit purchase. Analysis of the payment history of accounts payable reveals the following:  85% of credit purchases are paid in the month following the purchase (the 1.7% discount is applied to these payments)  The balance is paid in the month following the first payment

Statement of Estimated Receipts of Accounts Receivable

Payment Pattern 1 Month 2 Months 3 Months

Receipts %

Discount %

Net Receipts %

Credit Sales		Timing of Cash Inflow
		March	April	May
December
January
February
March
April
May
Totals

Statement of Estimated Payment of Accounts Payable

Payment Pattern 1 Month 2 Months 3 Months

Receipts %

Discount %

Net Receipts %

Credit Purchases		Timing of Cash Outflow
		March	April	May
December
January
February
March
April
May
Totals

Answer 1