Cash Budget (SIA, adapted) ‘The directors of TUV Company Limited, of which you are accountant, decide that in the future a short-term cash budget should be prepared for each quarter. Your company sells directly to the public for cash and through trade outlets on credit terms of 2/10, n/30. The accounts receivable have been analyzed and show the following record of collection:

70 percent of credit sales collected within the discount period 20 percent collected at the end of the 30-day period Balance collected at the end of a 60-day period At the end of any month, 25 percent of sales on which the cash discounts will be taken are still uncollected. Estimated sales for your first quarterly cash budget are as follows:

19_1 January February March Cash sales $30,000 $38,000 $45,500 Credit sales 74,000 79,000 85,000 TUV Company Limited makes purchases of goods for resale by paying for goods as delivered. By so doing they obtain a cash discount of 3 percent.
The markup on sales presently in effect provides a gross margin of 50 percent on gross cost (before cash discounts).
The minimum inventory required for efficient operation is $100,000 at retail prices.
Expenses are estimated as follows:
SELLING GENERAL Fixed expenses $6,000 per month $10,000 per month Variable expenses 10% of sales 5% of sales Expenses are paid monthly as they arise.
Ten percent of fixed expenses represents depreciation and amortization of deferred charges.
A piece of land priced at $30,000 is under option. Your cash budget will indicate to the directors whether or not they can purchase the land for cash on March 31, 191. Cash must be available to pay a quarterly dividend of $7,500 on preferred shares on March 31. The purchase of land must not affect the general current position of the company.
The following information is from the December 31, 190, Balance Sheet:
Cash $29,000 Accounts receivable 20,000*
Inventory at gross cost 70,000 “Credit sales for December were $31,580, of which $15,000 is still outstanding. November sales still out- Standing are $4,000. $1,000 is uncollectible.

1. Schedule of collections on accounts for each month of January, February, and March.
2. Schedule of cash required for purchases for each month of January, February, and March.
3. Cash budget for each of the three months ended January 31, February 28, and March 31, 19_1.
4. Brief comments for directors on the significance of the cash budget.

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