Prepare a statement of estimated cash receipts and disbursements for October 20X7 for the Herbal Magic Company, which sells one product, herbal soap, by the case. On October 1, 20X7, part of the trial balance showed the following:

The company pays for its purchases within 10 days of purchase, so assume that one-third of the purchases of any month are due and paid for in the following month.

The cost of the merchandise purchased is $12 per case. At the end of each month, it is desired to have an inventory equal in units to 60% of the following month’s sales in units.

Sales terms include a 3% discount if payment is made by the end of the calendar month. Past experience indicates that 70% of sales will be collected during the month of the sale, 20% in the following calendar month, 5% in the next following calendar month, and the remaining 5% will be uncollectible. The company’s fiscal year begins August 1.

Unit selling price …………………………. $ 22

August actual sales ……………………... $ 8,800

September actual sales …………………... 44,000

October estimated sales …………………. 37,400

November estimated sales ………………. 19,800

Total sales expected in the fiscal year … $528,000

Exclusive of bad debts, total budgeted selling and general administrative expenses for the fiscal year are estimated at $84,600, of which $27,000 is fixed expense (which includes a $12,900 annual depreciation charge). The Herbal Magic Company incurs these fixed expenses uniformly throughout the year. The balance of the selling and general administrative expenses varies with sales. Expenses are paid as incurred.

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DR S 5,000 15,620 CR Cash Accounts receivable Allowance for bad debts Merchandise inventory Accounts payable, merchandise $2,100 12,240 7,280