E8–4 Time allowed: 25 minutes You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

1 The cash balance on 1 December will be £40,000.

2 Actual sales for October and November and expected sales for December are as follows:

Sales on account are collected over a three-month period in the following ratio: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectable.
3 Purchases of stock will total £280,000 for December and 30% of a month’s stock purchases are paid during the month of purchase. The accounts payable remaining from November’s stock purchases total £161,000, all of which will be paid in December.
4 Selling and administrative expenses are budgeted at £420,000 for December. Of this amount, £50,000 is for depreciation.
5 A new web server for the Marketing Department costing £76,000 will be purchased for cash during December, and dividends totalling £9,000 will be paid during the month.
6 The company must maintain a minimum cash balance of £20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required 1 Prepare a schedule of expected cash collections for December.
2 Prepare a schedule of expected cash disbursements during December to suppliers for materials for stock purchases.
3 Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month.
Problems

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October November December Cash sales 65,000 70,000 83,000 Sales on account 400,000 525,000 600,000