Cash Budgeting (Merchandising Company)

Jim Henry, owner of Henry’s Retail, is negotiating a $100,000, 15%, four-month loan from the Garfield County Bank, effective October 1, 2009. The bank loan officer has requested that Henry’s prepare a cash budget for each of the next four months as evidence of its ability to repay the loan. The following information is available as of September 30, 2009:

a. The accounts payable are for September merchandise purchases and operating expenses and will all be paid in October. Sales forecasts for the next few months are October, $220,000; November, $300,000; December, $400,000; January, $200,000; February, $140,000.

b. Collections on sales are usually made at the rate of 20% during the month of the sale, 60% during the month following the sale, and 15% during the second month after the sale. Five percent of accounts receivable are written off as uncollectible. Of the $97,500 of accounts receivable at September 30, $65,000 will be collected in October, and $32,500 will be collected in November. Cost of goods sold is 55% of sales, with all purchases paid for in the month following purchase. Ending inventory should always equal the cost of the goods that will be sold during the next month. Operating expenses are $18,000 a month plus 5% of sales, all paid in the month following their incurrence.
Required:
Prepare a cash budget showing receipts and disbursements for October, November, December, and January. Also prepare supporting schedules for cash collections, purchases, and operating expenses. Assume that the loan plus interest will be paid on January 31.

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Cash on hand Accounts receivable Inventory Accounts payable. 9,000 97,500 64,000 144,500