Cash Budgeting (Merchandising Company)

Whitlock, Inc., buys hardware parts from various manufacturers and sells them to retail stores. Management is currently trying to prepare a cash budget for August and has the following information available:

a. The cash balance on August 1 is $25,000.

b. Actual sales for June and July and projected sales for August are as follows:

Credit sales are collected 63% during the month of sale, 26% during the month following the sale, and 11% during the second month following the sale.

c. Whitlock’s actual purchases for June and July and its projected purchases for August are as follows:

All accounts payable are paid in the month following the purchase.

d. Total administrative and selling expenses (including $14,000 depreciation) for August are expected to be $105,000.

e. Whitlock expects to pay a $26,000 dividend to stockholders and to purchase, for cash, a $25,000 piece of land during August.

f. Cash on hand should never drop below $25,000.
1. Prepare Whitlock’s August cash budget, assuming that the company borrows any amounts needed to meet its minimum desired balance.
2. Interpretive Question: What types of expenses other than depreciation would be excluded from a cash budget?

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Cash sales Credit sales June $ 30,000 100,000 July $ 45,000 120,000 August $ 50,000 130,000