Environmental Landscaping Inc. is preparing its budget for the first quarter of 2012. The next step is to prepare a cash receipts schedule and a cash payments schedule. The following information has been collected:
1. Clients usually pay 50% of their fee in the month when the service is provided, 40% the next month, and 10% in the second month after receiving the service.
2. Actual service revenue for 2011 and expected service revenues for 2012 are as follows: November 2011, $90,000; December 2011, $70,000; January 2012, $110,000; February 2012, $120,000; and March 2012, $130,000.
3. The company pays for purchases of landscaping supplies (direct materials) 60% in the month of purchase and 40% the following month. Actual purchases for 2011 and expected purchases for 2012 are: December 2011, $14,000; January 2012, $13,000; February 2012, $15,000; March 2012, $20,000.
Instructions
(a) Prepare the following schedules for each month in the first quarter of 2012 and for the quarter in total:
(1) Expected collections from clients, and
(2) Expected payments for landscaping supplies.
(b) Determine the following balances at March 31, 2012:
(1) Accounts receivable, and
(2) Accounts payable.