3. Budgeting for cash

Which of the following statements are true with regard to a cash budget? Check all that apply.

A. Annual budgeting information usually provides sufficient information to manage most companies.

B. The three sections of a cash budget, in order, are the cash collections schedule, the disbursements schedule, and the cash balance reconciliation.

C. The single biggest disadvantage of the cash budget is that it is not useful in identifying a firms potential cash shortages.

D. A cash budget is a forecasted statement that shows how a companys cash will be obtained and how it will be spent.

Assume that Morgan Co. has the following accounts receivable pattern:

Month of sale	80%
Month following the sale	20%

All sales are on credit. If sales in April and May are budgeted to be $900,000 and $1,000,000, respectively, the cash expected to be collected in May is ? .

Morgan Co. purchases raw materials on account. Some of Morgans suppliers do not offer discounts and require payment the month following the purchase. Other suppliers sell on credit terms of 2/10 net 30, which means that Morgan can take a 2% discount and pay 98% of the invoiced amount if the invoice is paid within 10 days. If the invoice is not paid within 30 days of making the purchase, then Morgan must pay the full amount (100%) of the invoice. Morgan's policy is to take advantage of available cash discounts by paying on day 10 and to make payments to suppliers who do not offer discounts on day 30.

At the beginning of the year, Morgans account payable balance is $70,000. All available discounts have been taken, and the balance will be paid in January. Given the following planned purchases for the next few months, determine the amount of cash that must be available each month to pay for the firms purchases:

	Planned Purchases Discounted at 2/10 Net 30	Planned Purchases without Discounts	Monthly Cash Requirement
January	$70,000	$30,000	?
February	$40,000	$60,000	?
March	$70,000	$30,000	?